No one ever plans to fail, but those who fail typically fail to create a real estate investing business plan.
Okay, so you’re ready to get off the sidelines and into the real estate investing game. Congratulations! You’re taking a big step. I remember when I was stuck on the sidelines. Looking back, what really helped me get to work was creating a real estate investing business plan.
Every business, large or small, local or international, has a business plan. Real estate investing is the same. The real estate investing business plan is the master plan for your business’s future. You can’t build a home without a detailed plan and you can’t start a business without a road map pointing the way.
Planning is crucial. As the old saying goes, failing to plan is planning to fail.
If your dream is to be the next Flip or Flop star or to just create a profitable business that can support your family, then you need to put the time and energy into designing a strong business.
Today, I want to share with you my hard-won advice on how to make the very best business plan.
Tip #1: Get Specific On Your Real Estate Investing Business Plan
If you haven’t looked at the essential components of a business plan, read this Forbes article. After that, make sure you cover these six points.
- Write a clear, concise company values and mission statement.
- Make sure to break down your goals into short, medium, and long-term goals.
- Consider the company’s strengths and weaknesses.
- Be clear on how the company will be financed, and from what sources.
- Roughout your marketing and lead generation efforts.
- Thoroughly cover the contingencies, including exit strategies and your backup plans.
Tip #2: Get In-Depth On You and Your Team
If you’re starting small, you may not have a direct team. But you’ll likely have contractors, title agents, attorneys, contractors, or other real estate agents you’ll be working with. Be clear on your team and leverage the experiences of your contractors when writing the plan. Their experience will give you credibility, especially in the beginning. Make sure to answer the question: Why should anyone want to work with me?
Don’t neglect real estate partnerships or joint ventures either. If you cultivate a network of local pros, then you’ll gain credibility as you work with them.
Tip #3: Understand the Competition
Real estate is an intensely local game. Each local market has its quirks. Get out into your target market and do research on the other players. Often, real estate investors just starting out fail to fully analyze the competition. This happens because, unlike other businesses, real estate investors aren’t selling a product. Before they know you, pretend you are a prospect. Sign up for any marketing materials, like a newsletter or research report. Visit an open house. Do your best to get a first-hand look at what your competition is doing.
Tip #4: Choose a Strategy Or Two Or Three
In 2005, when the Texas real estate market was booming, everyone wanted to be a flipper. That was it. “I buy low, make minimal repairs, and sell high.” However, when the market changed, these flippers didn’t know how to adjust.
Also, think of the opportunity costs of all the deals you’re missing out on if you’re only going after properties with 50% LTV. You can still do a profitable deal on a house with little, no, and even negative equity if you know the right buying & selling strategies.
Our business as real estate investors is to solve the problems facing distressed home sellers. There is NO 1 size fits all real estate investing solution. If you’re new, you need to recognize what problems fit specific solutions and have a plan on how to handle these situations (meaning assigning the contract to someone who can do the deal, partnering, or joint venturing with a more experienced real estate investor) when they arise.
Tip #5: Cash is King
I’ve known real estate investors who failed to appreciate the fundamental tenet of modern business: cash is king. This happens when investors lose sight of the building a business pipeline because a deal takes too much time. More importantly, novice investors often fail to consider just how long it will take to finish a deal. Make sure to find out just how long it will take from the time you find a deal until the cash is in the bank.
Tip #6: Be Clear About What You Want and How to Exit
Why are you investing in real estate? You’ll need to answer this question clearly to be successful. Have you considered your profit targets, employee count after year two, expected return on investment (ROI), or average number of monthly deals? These are some of the questions to ask yourself when designing your business plan.
Real estate investing is as much about a proper entrance as it is about a proper exit. You now know what it takes to start a company, but have you thought about your break-even point is? If you aren’t succeeding, you need to know. If so, you might need to expand into partnerships or joint ventures or to close down.
No Plan Survives Contact with the Enemy
The hardest part of making a plan is using it. While the old military maxim often holds true, your plan is a guide that will help keep you on course. Re-evaluate and adjust as needed during the first few years.
