In this guide I’m going to outline all the components you’ll want to include in your real estate investing business plan.
You can get started by watching this video tutorial on why real estate investors should create a business plan and the how to steps that go with it. Don’t forget to subscribe to the channel (:
Let me ask you a simple question! Would you drive across the country without a map?
The answer is most likely no! You’d get lost right?
Well the same applies to starting a real estate investment business. You need a plan!
Your business plan will serve as your road map giving you guidance along the way so that you know what you are trying to achieve and how you’ll go about doing it.
That’s phase 1. Phase 2 is the fact that your map won’t always save you.
When taking a road trip you still encounter road blocks and detours that impact the initial route you were trying to take. This will happen in real estate.
Your business plan will serve as a guide only and you’ll still encounter problems you’ll have to get creative and find solutions for. That’s the fun part though!
Alright let’s get into what your business plan should include!
Resources:
- Real Estate Investing School: How to Retire on Passive Income
- How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
What Should My Real Estate Business Plan Include?
Mission Statement—
This is the statement that tells people what your business’s purpose is and the benefits your business will provide. Spend some time researching company mission statements to develop yours. Consider it as your “Why” that we discussed earlier.
Goals —
What will real estate investing help you achieve? What is your monthly and annual income goal? Overtime your goals will change. That’s why in our setting financial goals article we had you create short, medium, and long term goals.
Starting with small, short term goals will help you achieve momentum and not be stressed out about hitting the big goals in the future. Break it down so it doesn’t seem to large to conquer. You’ll stay motivated and forward looking.
Time Frame —
What is your time frame to reach your goal?
Having a time frame will push you along to make sure you are staying on pace and working hard. Back in the school days, teachers set homework deadlines to push students along to get their homework done or else they’d likely never do it.
Be realistic, but don’t be afraid to reach, either.
Market —
This will be the location you target for investments. What city will you invest? What kind of property will you be searching for? Which parts of town or neighborhoods?
As a beginner, choose an area you feel most comfortable with. Try to select an area that’s also within a short driving distance of your home to give you easy access for stopping by the property time to time.
Become an expert of the area and become expert of who the players are within your area. You may find these players useful for partnering on future deals with.
Strategy —
There are lots of ways to make money in real estate, but you simply need to select one.
Master this one strategy and go a mile deep than spread yourself a mile apart trying to do everything.
The strategy will be your vehicle that takes you to your destination which ultimately will be your goals you are trying to reach.
Criteria —
Before you go out and start looking for deals, you need to establish the criteria which those deals must fall in.
Set financial criteria such as what type of returns you’re seeking, how much cash flow you require, what price range you’ll target for purchase price, what rehab budget you’re comfortable with, etc.
For example someone may want to invest in smaller less expensive houses that require less money for the rehab budget, while another investor may enjoy flipping mansions and spending hundreds of thousands on the rehab budget.
You can adjust your criteria as you see fit over time once you become more acclimated with the market and real estate investing but in general you should try to stick to your criteria.
It will help you stay on course and turn down deals that aren’t up to your standards. Often times people want to get that first deal so bad that they jump into a bad deal that fails their criteria.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
Marketing Plan —
The lifeblood of your business will be lead generation. You’ll need to generate a system that brings motivated sellers to you to make offers on their property.
You’ll need to market properties to tenant so you have a large pool to screen and select from in order to find the highest quality tenants to occupy your property.
Think about how you are going to create marketing systems for these different aspects of your business. How will you find the best deals that are listed?
Will you use the MLS, real estate agents, online searches, direct mail to lists, driving neighborhoods, or other means of finding deals? We cover a variety of real estate marketing strategies in this blog article.
Financing Deals —
How do you plan on acquiring your deals? Do you have money of your own to invest?
Will you need to rely on funding help from others such as conventional bank loans, hard money loan, private money loans, equity partners, seller financing, lease options, or some other creative method?
Finding financing is often the hardest challenge in your business. Learn to attract private money, so you’ve always got a steady flow of finance when deals present themselves.
We cover a lot of different real estate financing strategies here.
How You’re Going to Do Your Deals —
What’s your plan of action once you acquire an investment property?How are you going to turn this purchase of a property into profit?
You’ll need to clearly define the steps so that you are ready for delegating work to your teams and systems.
Teams and Systems —
Clearly define your team and the systems you and they will use to delegate and automate tasks.
Who will be on your team? Your team will be very important for helping your business run as well as grow.
Exit Strategies & Backup Plans –
Having multiple clearly defined exit strategies is one of the most important parts of your business plan, especially for new investors.
How are you going to exit the deal? What are your backup plans?
Do you flip, lease option, wholesale, bird dog, sell the note, sell the entity holding title, rent and hold, or some other technique? What is the end game?
This needs to be clearly defined. Your first exit plan may fail to happen which is why it’s important to have multiple exit strategies lined up.
An example would be a flip you thought was going to make you profit but you overran the rehab budget and the home prices have been falling.
This may force you to have a back up plan of holding the property as a rental and receiving monthly cash flow from it to recoup your losses. Years later you may sell it when the market goes up and home values rise again.
Flexibility —
We mentioned that you may need to make adjustments as you learn more about your market and investing. Being flexible and changing your market and/or strategy is important if you are not finding enough deals to pick from.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
Example Deals—
This part of your business plan will get you excited and help you build confidence in your plan. You’ll need to illustrate purchases, cash flow projections, profits, return on investment, and more to see what your path will look like to reaching your goals.
We did the exercise earlier where we illustrated an example deal that then allowed you to calculate how many similar deals or units you’d need to own to reach your cash flow goal.
Also, when you approach private money, understand that they will want to see example deals of how they will earn return on their investment in your business.
Personal Financials —
You need to take a snapshot of your current financial state and see what you can contribute to your business and where you fall short.
Do you have equity in your home you can use? Do you have steady income and a decent credit score that will help you get bank financing? What is your net worth? How much do you spend per year living?
We did this exercise earlier to prepare you for this, helping you map out what your current cost of living is and how much you’ll need to be able to retire. You’ll want to re-evaluate your financials at least every 3 months, 6 months, or annually.
Net Worth Analysis Worksheet
To wrap up the basic ingredients of your real estate investing business plan, remember that your plan is just a guide not a rule.
It’s to be used for giving you direction and keeping you motivated and on task. When you map all of this out, it will all seem more attainable.
You will have bumps along the way and things will happen that make you adjust and change.
Realize that your plan will not go as perfectly as you desire, but by having a plan you are protecting yourself from the failures that so many have had as a result of never creating a business plan.
