Building an investment business in real estate without a solid business plan is like riding a bike without handlebars. Sure, it's possible, but why make things harder for yourself? A well-crafted business plan can outline key factors such as lead flow, funding sources, and target markets. According to Entrepreneur, having a business plan increases your chances of success by 30%. So, don't skip this critical first step. Let's dive into how you can create a winning real estate investment business plan.
What is a Real Estate Investment Business Plan and Why Does it Matter?
A real estate investment business plan is a document that outlines your goals, vision, and strategies for growing your business. It provides a roadmap for your chosen real estate business model, lead generation methods, funding sources, and deal-closing strategies. The key is to keep it simple and concise, ensuring that your plan remains easy to understand and implement.
Having a business plan is essential for several reasons. First, it gives you a clear direction and purpose for your business, helping you stay focused and motivated. Second, it increases your chances of success by providing a foundation for making informed decisions and avoiding potential pitfalls. And finally, it instills confidence in potential investors or partners, demonstrating your expertise and commitment to your business.
How to Create Your Real Estate Investment Business Plan
Now, let's dive into the nitty-gritty of creating your real estate investment business plan. Follow these ten steps to lay a solid foundation for your business:
1. Create Your Mission & Vision
Your mission and vision set the tone for your business. They define why you're entering the real estate investing industry and what you hope to achieve. Your mission statement should be specific, outlining the purpose of your business, such as creating affordable housing opportunities or providing exceptional experiences for homeowners. Your vision statement, on the other hand, should paint a picture of where you see your business in the future.
Remember, having a clear mission and vision can provide the motivation and drive needed to overcome obstacles and achieve your goals. It's also an opportunity to establish your core values, which will guide your business practices and decision-making.
2. Run Competitive Market Analysis
Determining which market you'll operate in is a crucial decision that can significantly impact your success. While operating in your local area may seem like the obvious choice, technology has made it possible to invest in any market remotely. Consider the following metrics when conducting market analysis:
- Median Home Value: This indicates the average selling price of homes in the market and helps determine if it aligns with your investment goals.
- Median Home Value Increase Year Over Year: A positive increase suggests a market where property values appreciate, increasing your potential return on investment.
- Occupied Housing Rate: A high occupancy rate indicates a strong demand for housing, making it easier for you to find tenants or buyers.
- Median Rent: This average rental cost provides insight into potential rental income if you decide to pursue rental properties.
- Population Growth: A growing population often leads to increased demand for housing, both for rentals and purchases.
- Job Growth: A healthy job market indicates economic stability and offers more opportunities for profitable real estate investing.
Conduct thorough research on Google by typing in the market and the specific metric you're interested in. This will provide meaningful results and help you make informed decisions about which market to choose.
3. Choose Your Business Model(s)
Real estate investing offers several business models, each with its own advantages and considerations. Your chosen market and business goals will dictate which model is the best fit for you. Here are a few popular options to consider:
- Wholesaling: In this model, you find distressed properties and assign them to cash buyers for a fee, typically between $5,000 to $10,000. It requires little upfront capital and is a low-risk option for beginners.
- Wholetailing: Wholetailing combines wholesaling and house flipping. You find properties, make minimal repairs, and sell them on the market for a higher price. It offers larger profits with less work but might require more experience to find suitable deals.
- BRRRR: This stands for Buy, Rehab, Rent, Refinance, Repeat. It involves purchasing and rehabilitating properties to rent out, building long-term wealth through rental income and property appreciation.
- Flipping: House flipping is a well-known model that involves purchasing distressed properties, renovating them, and selling them for a profit. It offers high income potential but carries more risk and longer project timelines.
Starting with one business model and mastering it before expanding is a recommended approach. As your business grows, you can explore and integrate multiple models to maximize opportunities.
4. Determine Your Business Goals
Clear goals are the driving force behind your real estate investment business. Begin by setting specific, measurable, achievable, relevant, and time-bound (SMART) goals. Determine how much money you want to make per month and translate that into the number of deals or transactions needed to reach your target.
For example, if your goal is to earn $10,000 per month, consider the baseline for each business model:
- Wholesaling or Wholetailing: Aim for 2-3 deals per month.
- BRRRR: Aim for $1 million in assets.
- Flipping: Aim for 1-2 flips per year.
Ensure your goals align with your market analysis and consider the overhead costs associated with achieving those goals. Adjust your goals if necessary to ensure they are realistic and attainable.
5. Find Funding / Cash Buyers
Deciding how to fund your deals and finding potential cash buyers is crucial. As a beginner, consider funding your own deals initially to gain experience and minimize upfront costs. However, even as a wholesaler or wholetailer, finding cash buyers is essential.
To find potential cash buyers, build relationships within your network, attend networking events, and consider creating a buyer website to showcase your offerings. As your business grows, you may need to explore additional funding sources such as bank loans, hard money lenders, or private investors. Research and compare the options available in your market to make informed decisions.
6. Identify Lead-Flow Source
Generating a consistent flow of motivated leads is essential for your real estate investment business. Short-term and long-term marketing strategies must work together to ensure ongoing lead generation. Short-term tactics, such as direct mail, Facebook ads, and cold calling, are effective for immediate results. However, long-term evergreen marketing tactics, such as building brand awareness and improving website SEO, ensure sustained lead generation.
Choose marketing strategies based on your budget, target audience, and market conditions. Consider hiring a professional service, like Carrot, to assist with lead generation and conversion by creating a high-converting website and implementing effective marketing campaigns.
7. Gather Property Analysis Information
Analyzing properties is a crucial step to determine if they align with your investment goals. When a potential seller contacts you, ask key questions about the property, such as its address, features, repairs needed, and asking price. Conduct due diligence by researching recent sales of comparable properties in the area to estimate the property's after-repair value.
Walk through the property and take detailed pictures to assess repair costs accurately. Utilize resources like REISift to estimate rehab costs and calculate your maximum offer. Use the 75% rule as a guideline to determine the maximum price you should pay for the property. Streamline this process to save time and make informed decisions.
8. Create Your Brand
Establishing a recognizable brand is crucial for your real estate investment business. Your brand should establish rapport, create recognition, and dominate the conversation in your market. Start by creating a high-converting website with a professional design that also reflects your brand colors, fonts, and logo.
Incorporate testimonials and case studies from satisfied clients to establish trust and credibility. Consistency across all platforms, both online and offline, is vital to create an easily recognizable brand. Implement a robust online marketing system, like Carrot, to streamline branding efforts and generate leads effortlessly.
9. Set Growth Milestones
Once your business is up and running, it's time to set growth milestones. Determine where you want your business to be in the future and break down those goals into quarterly objectives and actionable tasks. Assign specific to-dos for each quarter, ensuring they are realistic and achievable.
For example, if your goal is to increase from one deal per month to five deals per month by the end of the second quarter, your to-dos could include sending a specific number of mailers per month, spending a set amount on Facebook ads, and hiring additional team members. Focus on scalability and automation to grow your business effectively.
10. Plan to Delegate
To scale your real estate investment business, you must plan to delegate tasks and responsibilities. Building a successful business requires partnering with other professionals, hiring and training employees, and creating efficient systems and processes.
Automate repetitive tasks, build critical relationships, and establish systems that allow you to step back from day-to-day operations. This will enable you to focus on strategic decisions and growth opportunities. As your business expands, consider utilizing cloud contact center software to manage client communications and ensure long-term satisfaction.
Final Thoughts on Real Estate Investment Business Plan
Congratulations! You now have a comprehensive understanding of creating a real estate investment business plan. Remember, the key to success lies in taking action. Implement the steps outlined in this guide, reach out for assistance when needed, and watch your real estate investment business thrive. Good luck!