Creating a Business Plan for Real Estate Investing
Creating a business plan is usually a top priority for entrepreneurs but for some reason when it comes to investing in real estate, we see many investors skip this step. Not sure if folks think it’s easy and/or not necessary but at Unbundled we think it is the heartbeat of a quality real estate investment portfolio.
To start, a business plan for a real estate business gives you an opportunity to explore your thoughts by writing them out. Human brains are not computers, we cannot remember everything. By starting with a well thought out business plan this can act as your road map. Like any road trip, there will be detours, rerouting and your occasional break down. Do not let this scare you, it is just part of the journey.
Not sure where to begin with a Real Estate Investing focused business plan? We suggest you start with these steps:
Business Plan = Road Map
Writing out a business plan gives you the opportunity to explore your ideas and thoughts. Having a plan to refer to can help guide you on your journey, even when you have detours and unexpected events.
Why do you want to invest in real estate?
A common answer is “financial independence”. While real estate investing is one of the best ways to get to financial independence, the journey there can not be taken lightly. You must challenge yourself to find out if you are prepared and willing to go on that journey. You can make the dollars needed to get to financial independence a variety of ways, do not be fooled that it can happen fast in real estate. Be honest and specific with why you want to invest in real estate and make sure you are prepared for the journey ahead.
One of my favorite responses I have seen to this question is “To provide more moderately priced housing”. The reason we like this response so much is how specific it is in such few words.
Action Item: In as few words as possible sum up your “why”.
What are your Real Estate Business Objectives?
Identify your core objectives, including the size of your portfolio you are setting out to build. Knowing your primary goals and the scope of the portfolio you intend to launch is crucial when launching a real estate investment plan. This will assist you in defining and identifying the resources required to meet your objectives. As you draft your plan, take these things into account:
Determine your target market, including specific locations.
Do market research to make sure you are aware of the trends in the market you are aiming for.
Specialty focus: A common theme we see in successful real estate investors is that they concentrate on a certain niche and become experts in it. This may be as specific as single family, ranch style homes on less than ½ an acre, less than 1,200 sq. ft. with a full basement.
Create your marketing strategy: What channels and tactics will you employ to connect with your target audience(s)? Will you be flipping properties or renting? Depending on your plan there are different tactics to explore.
Create a strategy including a timeline for how you'll achieve your objectives.
Set a quantifiable objective like - “I will purchase 8 single family ranch style homes in my target market and meet my criteria”
Remain consistent: Create a dependable plan and don't give up. You must stay disciplined. It may take 20+ offers to get that first deal. Focus on the process, not the results, especially in the early stages.
Monitor your progress: Calculate the ROI for each of your marketing initiatives. At Unbundled we constantly discuss ROI in terms of both capital and time. Time is not a replaceable resource and must be measured throughout your journey.
Note: There is no right answer, do not be too hard on yourself BUT you must be honest. If you have a goal to make a million dollars a year, you need to measure your plan that way and the details need to be much more in-depth than someone looking to purchase one million dollars in real estate for retirement purposes.
Legal Requirements for your Real Estate Business
Speak with your attorney and accountant before starting your real estate investment journey. They may offer you priceless guidance to make sure you are abiding by all legal laws and establishing your company with the greatest probability of success.
Identify the target market for your Real Estate Business
To ensure that you are investing in the markets that align with your goals, you must conduct research. When building a real estate portfolio, make sure you research all feasible markets and locations. To do this, you must physically travel to places you have never been in order to familiarize yourself with the market size. To make a well-informed choice regarding the markets you wish to invest in, take into account additional elements including infrastructure, population density, and demographic shifts. Additionally, you should look at the trends in the job market across various industries.
A client once shared that they researched and found access to Starbucks opening and closing of locations. This is brilliant! Think outside the box and use accessible data to help strengthen your plan. Starbucks locations are great indicators of popular areas, typically that are projected to increase in value over time.
Assess your Current Resources for Real Estate
Access to resources including capital, vendors, real estate agents, equipment, and supplies is crucial for building a real estate portfolio. You can decide which markets are the ideal fit for you with the aid of these resources.
Note: This should help enlighten you about areas you need more resources.
Real Estate Business Organization and Management
It's essential to know the roles and team members you require when setting up your real estate portfolio to run the portfolio. This includes any specialists you would need to help manage and maintain the portfolio, such as accountants, bookkeepers, insurance agents, and attorneys. When building your portfolio, it's helpful to take note of your strengths and weaknesses because doing so will enable you to decide which tasks you should fill in-house and which ones you should outsource. With the help of this information, you can choose the best team members and resources to use.
Note: It is just as important to know your weaknesses as it is your strengths! Also some areas require certain licenses, be sure to speak with your attorney about what tasks you can or can not complete yourself based on your local requirements.
Start-up costs for your Real Estate Business
Depending on the type and size of the portfolio you're starting you'll require a different amount of capital. You should take into account the cost of hiring employees/freelancers, marketing, insurance and other business-related costs. It is critical to put together a budget and financial plan that details the initial costs and your funding strategy for the build out of your portfolio.
Milestones in your Property Investment Ventures
Your business plan should include milestones for you to track and work towards. Milestones are important because they enable you to gauge your progress. A common milestone or goal in investing in real estate will be a measurement of REO (real estate owned), or number of doors under management. Setting both short-term and long-term goals is important while establishing milestones. Long-term objectives may take several years to complete, while short-term objectives can be accomplished within a few months. It is suggested that your short-term goals align with your long-term goals. Milestones must be clear and quantifiable.
Note: This is a time for you to review your plan. You will want to challenge your plan by asking questions like, does my access to capital today align with the projected start-up costs? If I bid on a property today, do I have the business documents and banking in place?
In Summary
If you take the time to start with the questions throughout this blog, it can help lead you towards crafting a well thought out business plan. The above is not meant to be the final product, it is meant to get your wheels turning and assist you in making your next move in investing in real estate. Whether you are just starting your portfolio or a seasoned investor, there is no better time than now to organize your journey and build your very own road map. Once you have a plan, it is yours! You can share it with others (potential investors would love to see a well thought out plan) and most importantly you can look back to it throughout your journey. Happy Investing!
