How to Create a Business Plan to Invest in Real Estate
Do you want to grow wealth with real estate investments? If so, the most important factor is your mindset. In order to be successful with real estate financing, you must treat your investments like a real business because that’s what it is. Otherwise, you’ll limit your opportunities for success.
Like with any new business venture, the first step to get started is to create an actionable business plan. A business plan is a written document to establish your plan for the business. This is your road map for success. Remember, a solid foundation is key to understand, launch, and execute your vision, goals, and the specific steps for your real estate investment business.
Consider these real estate financing strategies below as you create your business plan.
The first part of your real estate business plan is a written mission statement. The mission statement can be only a few sentences or a short paragraph stating the purpose of your business and the benefits provided. Be specific. Don’t be tempted into generalization. This is your clearly defined reason for creating and running this business.
Goals should always be specific, time bound, and measurable. Your goals are what you want to accomplishment through your business. Create both short-term and long-term goals. An example of a short-term goal is to execute three real estate transactions by year end. An example of a long-term goal is to make a minimum of $100,000 per year in passive income by the end of 2022. The key is to identify and document the time-specific goals you want to achieve.
The strategy section of your business plan is the bulk of your document. This is where you get detailed about how you’ll execute your mission statement in order to reach your real estate goals. The strategy section may also be the hardest part to write. Creating your strategy requires market research to understand how the market works, where to find money to invest, how to promote your business, and what types of investments you’ll make. This is the details for running your business.
Part of your strategy is to determine the market you’ll target for real estate investments. Will you buy single-family homes to flip, or will you invest in multifamily housing? What is the geographic area you will focus on? What price range are you targeting? These and other specific elements must be considered in order to define your target market. A good rule of thumb for new real estate investors is to focus on the area near where you live. This will help you make fewer mistakes and become an expert in the market.
Before you begin investing, define the criteria for your real estate deals. Within the market you defined, what specific elements must the deal meet? This includes items like the purchase amount, necessary rehab, cash flow requirements and other details for the investment. These are your conditions that must be met in order to go forward with the deal.
Real Estate Financing
The most important element to consider with real estate financing is your return on investment. Determine how you will pay for the real estate investment in order to make the highest return. Various financing options are available including cash, business loans, conventional loans and equity partners. Before you begin investing in real estate, understand how financing works.
As a new investor, it is key to understand your exit strategy. For example, are you purchasing a single-family home to flip? Or, are you buying a multifamily property to gain monthly revenue? What will you do if the investment doesn’t go as planned? Consider at what point the investment must be released. If you define and plan for your exit strategy upfront, you won’t be caught off guard.
A good business plan must include a financial section. This is where you state your current financial status. How much cash do you currently have? What is your current net worth including all investments and equity? For new real estate investors, this will primarily include your personal financial data. However, as your business grows, update your financial data. You will need current information to share to secure financing and partnerships.
Don’t skip the business plan. The entire purpose of developing a business plan is to understand the details for your business. Creating a business plan allows you to determine the goals and strategies for your real estate investments. A quality, well-thought out business plan will set you up for success.