In order to help you on your journey, we will explore 7 key ingredients that are essential in a complete real estate business plan.
1. How Much Are You Going to Invest Initially?
It’s important for business plan purposes to at least allocate an amount of money that you wish to invest at first. This can be cash on hand, savings, a line of credit, IRA money, partner’s money or other. It’s not important to have an exact amount, just a starting point. The amount can be changed as needed.
2. Entities and Principals
I am always amazed in my roles as both an investor and business consultant at a number of investors, even those experienced, that do all of their business and hold all or most of their assets in their own names! A proper business entity (LLC, S- Corp., C-Corp. or other) can provide asset protection and help with your tax situation- in a BIG way! Most investors start out with an LLC, which is fine but there may be other entities, such as an S-Corp. that are better suited for their particular investment strategies. Many of us, that do a variety of investment strategies, have at least a couple (NOTE: Everyone is a bit different so, we recommend consulting an attorney, tax advisor; mentor or accountant versed in real estate for what will be the best option for their business).
You also need to list the folks who will be part of your entities, their positions, and percentages of ownership.
3. Investing Strategies
Real estate is a business with many potential investing strategies. Some strategies work better in different types of markets and locations. It’s up to you to pick a few that make sense to you, depending on your education, available funds, location, type of market and more. Joining a local REIA (Real Estate Investing Association) or seeking the advice of a mentor is a good way to narrow down your choices. Educating yourself will help determine what may be a good fit for you and your partners.
4. Goals and Income for 1, 3 and 5 Years
It is also important to have an idea of your goals as to what you wish to accomplish over a period of time and the potential income that you can derive from those efforts. As far as goals, what do you want to do? Replace current income? Retire? Build an empire? It’s important to relate your business plan with your goals and to figure out what kind of income one can derive from that. Short term strategies such as Wholesaling, Rehabs etc. can yield anywhere from $3k to $40K + per deal. Long-term strategies such as Buy & Hold ($300- $500 per month) will take longer and yield less income annually but pay off big time after a few years. As far as goals, you obviously should be making quite a bit more in 5 years than at year 1.
5. Investment Areas and Target Sellers/Buyers
It’s important to figure out the area or areas where you will invest. Most of us start with areas close to where we live, but it is possible with the right team and plan in place to successfully invest in other states and other areas. Depending on your investing strategy, you will also want to identify who your target seller will be and market to them accordingly.
6. Marketing Plan
You can know all there is about real estate and have unlimited funds, but without a Marketing Plan, you have NO business! There are a variety of types of marketing within the grasp of the average investor and it’s up to you to try a variety of methods, track what works, and pursue it relentlessly! Your business plan should list the various marketing tactics you plan to use and maybe even include some potential marketing ideas for the future.
7. Exit Strategies
Nothing is forever. A great business plan also includes when and how you plan to exit the business. Some choices are; Closing the Business, Selling It, Giving it to Your Heirs and more. This can also be changed as time and circumstances dictate.
Hopefully, these 7 Tips will help you formulate a solid business plan that rockets you to success! Remember, a business plan is like a map. It can be changed, tweaked, adjusted and revised as your circumstances or the market circumstances change.