Table of Contents
- 1 What is a real estate business plan? (And why having one is crucial)
- 2 The nine elements of a real estate-investment business plan
- 3 The bottom line
When most people think about starting a real estate investment business, they dream about the glamorous parts of the business, like earning passive income. They often don’t think about the less glamorous aspects, like writing a real estate-investment business plan. However, those behind-the-scenes aspects of running a business are often some of the most important.
With that in mind, below is a guide on how to write a real estate business plan. Read on to learn how to create this important document.
What is a real estate business plan? (And why having one is crucial)
At its core, a real estate business plan is a document that details the way in which a particular investor intends to run their business. In particular, it deals with big-picture aspects, such as the specific goals the investor has for the company along with the individual strategies and timelines that they intend to use to achieve those goals.
It’s important to note that while many investors create the original draft of their business plan when they first start out, ideally this document will follow you throughout all the different stages of your business and grow with you as your company develops.
To that end, having a real estate-investing business plan is crucial because it will act as a road map for your business. From the outset, creating one forces you to get clear on your goals and how you intend to achieve them. It can also lend a sense of legitimacy to your company. Often, if you intend to court additional business partnersstyle=”text-decoration: underline”> or investors to help you take your company to the next level, they’ll expect to see a copy of your business plan as a way to get a sense of your business practices.
The nine elements of a real estate-investment business plan
Now that you know what a real estate-investing business plan is and how it can benefit your company, the next step is to take a closer look at how to put your business plan together. While there’s no singular way to create a business plan, most do follow a similar structure, as outlined below.
1. Executive summary
As the name suggests, this section encapsulates the information the reader will find in your plan. For this reason, even though this section comes first, the savvy real estate investor will often write it last, after sorting out all of the other information contained in the plan.
A well-thought-out executive summary typically contains three sections:
- A brief overview of your business and the services you provide.
- An overview of your investing experience and any attributes that make your company unique.
- A list of your major business goals.
Importantly, the executive summary is often the only section of your business plan tailored to the reader. If you were courting a potential investor, for example, you might focus on how you intend to keep your projects on budget. On the other hand, if your reader is a business partner, you might want to focus on the unique skills you bring to the table.
2. Organizational structure
The section is typically one of the shortest. However, it’s still important. This is the section that introduces the reader to you and your top team members as well as gives essential background on your company. The organizational structure section of your business plan will typically include the following elements:
- Company history: A short summary of your company history, including when it was established.
- Team composition: Who you are and your role in the real estate investing process, as well as similar summaries for your other important team members.
- Legal structure: You should detail whether you’re running the business as a sole proprietor or a business entity.
- Mission statement: A brief summary of the guiding principles on which your company was founded.
3. SWOT analysis
A SWOT analysis is an essential feature of any business plan. In this case, “SWOT” stands for strengths, weaknesses, opportunities, and threats. This analysis is essentially a look at where you stand in the real estate industry compared to your competitors. It’s an in-depth discussion of the attributes of your business that will put you ahead of the curve, as well as the areas where you could stand to improve.
4. Market analysis
The market analysis section of your business plan is important in demonstrating your knowledge of the real estate marketstyle=”text-decoration: underline”> in your area. Throughout this section, it’s crucial to identify who your target market is and what your investment strategy will be.
For example, you should identify whether you intend to invest in condos in walkable areas or single-family homes that have more potential for higher rents and longer-term tenants.
Above all, the goal of this section is to prove that you have the industry knowledge and experience to understand what makes a good investment.
5. Financing strategy
The financing strategy section is where you outline the different financing methodsstyle=”text-decoration: underline”> you intend to use to grow your investment portfolio. However, in addition, it should also include a financial projection for your company, stretching at least a few years into the future.
While the financial projection will initially be made up of educated guesses on your part, it’s important to go back once you’ve been in business for a while and update the numbers to reflect where you are currently.
You’ll want your financing strategy to include the following documents:
- Income statement: Also known as a profit and loss statement, this is an inventory of your current income versus your expenses.
- Cash flow statement: This document shows whether your company has positive cash flow or negative cash flow by detailing where cash is being generated versus being spent.
- Balance sheet: This sheet shows your company’s net worth versus any debts and liabilities.
6. Growth strategy
Every successful business needs to have an idea of how it intends to grow. While it may feel silly to make growth goals while you’re still trying to figure out how to finance your first investment property, having a few real estate and financial goals in place will show your potential investors and business partners that you’re strategizing ways to help your business remain solid well into the future. On a personal level, having goals in place will help you guide your decision-making processes as your business grows.
7. Lead and acquisition strategy
Your lead and acquisition strategy will cover how you intend to find the real estate properties you’re going to invest in. While employing a real estate broker and gaining access to the multiple listing service (MLS) is probably the most common strategy, there are other options. In particular, wholesaling and target marketing are other strategies you can explore.
8. Exit strategy
While a buy-and-hold real estate investment strategy won’t have the same exit strategy as, say, a house-flipping business, it’s important to outline the details of your marketing plan for finding tenants and any ongoing property management strategies you intend to employ. You’ll also want to specify how you’ll know when it’s time to sell one of your investment properties.
9. Goals and objectives
Lastly, your goals and objectives section will cover the specific metrics you’ll use to define the success of your business. However, rather than focusing on your long-term goals the way you might in the “growth strategy” section of your business plan, this section will detail the specific goals you’d like to achieve within the next three to five years.
Creating a real estate-investment business plan is a crucial part of getting your business off the ground. With that in mind, use the information above to help you write a comprehensive business plan that will appeal to potential investors and business partners. Armed with this knowledge, you should have everything you need to create a document that will serve as the guiding force behind your business for years to come.