Creating your Real Estate Investing Plan
Regardless of scale, any new real estate venture will be helped and guided by a thoughtfully developed Business Plan.
While your Plan very likely will change over time with experience , addressing key questions in the beginning–in written form–will focus attention on areas requiring further study or preparation. Preparing the Plan will help you identify specific skills and resources already in hand, and those which must be developed further for you to be successful.
To be meaningful, the plan will include ‘benchmark’ goals and objectives to be achieved over time against which your progress may be measured. The end product, your Business Plan, will be well thought out and organized, using proven financial and business planning techniques used by traditional investors and lenders.
Both the very act of preparing the document and the end product – the Business Plan itself – will help you decide whether the scheme is essentially sound. Will it work for you?
Preparing Your Real Estate Investing Business Plan: Method
In preparing your Business Plan, it is best to first focus on your Self, the primary actor in the proposed business venture, preparing a Resumé in support of your Business Plan. Your resumé will combine honest self appraisal with demonstration of your "business sense"–a personal attribute lenders and investors look for. You will prepare a Personal Financial Statement which will tally your financial readiness for the enterprise. Finally, you will draft a simple, succinct description of your proposed venture.
In writing the Business Plan you will describe in greater detail your planned business, the marketplace in which it will compete, and your Plan of Attack: your Marketing Plan. These written discussions will require definition of your proposed market–Who are your customers? Where are they to be found? How many are out there? And, just as importantly, who are your major competitors? What are their strengths and weaknesses? Given the competition how, or why, will you seize a piece of that market?
Marketing. Someone once said, “Nothing in this country happens until someone sells something!” It’s the dynamic preacher who builds the "mega" church; the charismatic politician who shapes national events; and the astute merchandiser who builds national retail chains in a decade or two. At their core, these ‘leaders’ are salesmen–they are selling ideas, systems or products that respond to, and sometimes virtually create need.
Having described who you are, how you will produce your product, and how you have sized up the market and its existing players, your Business Plan will state how you will engage that marketplace through an effective marketing plan.
This approach to creating a business plan is well established and, with minor variation, practiced throughout the country (and likely worldwide). It is useful regardless of the specific business endeavor, whether the enterprise will be a service company, manufacturer or retailer. All share the same need for close analysis, description and financial forecasting in order to justify entrepreneurial risk and commitment of human and financial resources.
Business Opportunity. For the purpose of this essay, we consider the acquisition and rehabilitation (“Rehab”) of improved real estate for sale or for long term investment, as a Business Opportunity.
To be sure, Rehab can be pursued as a part time, ‘avocational’ or even recreational activity. But for many, Rehab is an opportunity to work for oneself, to establish and run one’s own business. And to reap the considerable rewards and personal satisfaction of being truly independent. The preparation of a written Business Plan is a valuable, if not essential, first step in realizing that goal.
Plan of Attack. There are ten main topics generally included in a thorough business plan. Most of the topics will be developed in narrative (written) form.
Think of these topics as sections or “chapters” of the finished draft. Some may be quite brief: the Business Description, Location, perhaps even Operations. Others may prove longer, as research and analysis may require, to explain fully. Finally, the Financial Projections and Sources & Uses will be spread sheets intended to demonstrate both the quality of the analyses done and prospects for a profitable outcome. For all practical purposes, consider these topics as an appropriate Table of Contents and road map for what is to be included in your business plan.
Business Plan Topics
I. Statement of Purpose - The “Executive Summary”
II. Business Description
III. Market Information
VI. Location: Describe your Place of Business
VIII. Key Personnel
IX. Sources and Uses of Funds
X. Financial Projections
Benefits. While the prospect of writing a real estate investing business plan may appear intimidating, or simply too much work, the benefits far outweigh the effort. In the very effort you will be "visualizing", or walking through, the many vital factors which will bear on your ultimate success. But it is more than an exercise, or a "dry run". It is your preparation for the work you are about to undertake as an investor and entrepreneur.
We all understand real estate investing involves investment of both capital and mind. The rewards are substantial and, as they say these days, "scalable"–arguably without limit. To undertake your investing program without thoroughgoing preparation is to multiply the risks involved. Few of us succeed at great endeavors without risk. Your business plan will be an important step in making that "manageable risk". #
- Philip Elmes