In real estate, having a real estate business plan is a good way to organize your thoughts and develop a following. Each business plan is made up of several sections, all which can, in their entirety, be used as a sales development tool.
The Sections of a Real Estate Business Plan
The plan also enables you to track and monitor the growth of your business. However, with that being said, you still have to design your plan so investors and business partners will be encouraged to work with you. Therefore, make sure the following components are part of your plan. These elements are generally presented as follows:
- An Executive Summary
- A Company Overview, including Business Model and USP (Unique Selling Proposition)
- A Market Analysis and Specific Practices for Business
- A Marketing Plan
- Implementation – Steps for Success
- Financial Plan
- Salient or Important Assumptions
All of the above suggested sections should be added in your business plan in order to broadly lay out your business on paper. While this may seem like a lot of work, it is also necessary in order to succeed as a real estate investor. There is no way around it. You must create a business plan.
Creating your real estate business without a plan is like engaging in war without employing any tactics or strategies. If you don’t want to set yourself up for disaster, then a business plan must be considered as an aid and tool.
An Example of an Executive Summary
The executive summary condenses your business plan so you can explain why you are setting up the business and your objectives. The summary should not take up more than a page or two, and should detail the bullet points of the overall business plan. Frequently, it is best to wait to write the summary so each of the above-mentioned sections can be summarized more readily.
In order to write the summary, ask yourself the following, “What are the most important data from each section?“. These bits of information should entice a lender or another business partner to read further. That is why, many times, lenders or partners, will only ask for the summary. Therefore, you have to make the summary interesting enough to pique the reader’s interest. Below is an example of an executive summary.
-Example- Real Estate Business Plan Executive Summary:
[Your Company Name] Real Estate Investment is a local company in [Memphis, Tennessee]. The company concentrates on locating and acquiring multi-family housing in the greater metro area of [Memphis, Tennessee].
Our main competitive advantage lies in our ability to find and evaluate residential units that fit a specific purchasing criteria of properties that feature 10 to 100 units within major areas of commerce (shopping centers and malls), or workplaces, such as medical centers and colleges.
The plan is to buy distressed properties where the owner wants to make an exit because they are unable to continue to finance the property or they do not have the expertise to see a profit for the real estate.
Funding for the real estate will involve a mix of financing, based on each specific circumstance. Our relationship with and ability to access private funding enables us to supply debt or equity financing, depending on the details of each real estate transaction.
Long-term revenues are mainly focused on enhancing each property’s value with specific repositioning strategies to obtain top-of-the-market rents while reducing the cost outlay with better site management. Exit plans are slated for seven years after acquiring each property.
Short-term revenues are focused on improving property profitability, and to realize a positive cash flow after one year of acquisition. The minimum goal is $250 per door of net positive cash flows per acquisition.
A target of 800 units within the first two years is our current objective, or a net positive cash flow of $25,000 per month across the real estate portfolio. We plan to acquire 400 units in the first year, and 600 units in the second year while supplying debt and equity investors with solid and regular returns on their investments.
The above template of an Executive Summary can be used to craft your own summary for your real estate investment firm. By reviewing the points above, you can see how a business plan can assist you in thinking about how to achieve specific goals and objectives
The Company Overview
The company overview of a real estate investment business plan sets the stage for the reviewer to read about the foundations of your organization. This part of the plan tells the reader whether your business is a partnership, LLC, etc. It also indicates whether your business is an existing company that wants to expand or a start-up firm.
The overview further explains who owns the business, and the type of incorporation the business supports. A brief biography of each owner is provided with their qualifications. For example, it may show a reader that an owner is a contractor who is well-experienced in rehabbing homes, or is a marketer who has been selling real estate for the past eight years.
Lender-friendly Content for Real Estate Business Plan
Each section of the business plan should be crafted so it meets with the approval of a lender. Therefore, when you format a business plan, make sure what you say is lender-friendly. A lender wants to make sure your business is owned and managed by the right people – individuals who are capable of operating a profitable and successful real estate investment company. Therefore, you should present yourself as a company that will build a lender’s confidence.
Make Sure You Answer the Following Questions
Use the company overview to answer the following questions:
- What is the history of the company?
- When was the company created, and why?
- Who is the owner of the real estate investment firm?
- Where is the company based?
- What is the corporate goal?
- How was the company operated in the past?
- Is the company a start-up?
- Who in the company makes up your team?
- Are employees evaluated regularly?
After you establish how your real estate investment business is set up, and describe the company’s ownership, it is time to present your business model and your USP or unique selling proposition.
The Business Model
This portion of the business plan should be made up of several paragraphs targeted at showing what your real estate investment company does. Therefore, the model shows the how the company is focused. For example, is it your goal to buy multi-unit properties to hold for investment purposes or for buying? Or, will you use various investing strategies?
Write Out a Strategy – An Example
However, you plan to invest, write out your strategy, as in the following example:
Our real estate company focuses on one main model for generating a regular stream of income. We concentrate on rehabbing distressed real estate. We acquire the properties from foreclosures with the ultimate objective of selling them to the retail market after six months of purchase.
Naturally, the above example is a small sample. You can expand on the model. The whole idea, when writing a business, plan is to make sure each detail of the plan is read by lenders and business partners.
However, do not write so much that you start to bore your audience. Just make sure it is written so it is complete in its entirety. Show how your business model will appear in six, 12, 18 months, etc. You want to display your vision for your business. By creating a model and plan, you can show where your investment company is heading.
How to Format the Rest of the Real Estate Business Plan
Make sure you format the following sections, after the business model, in sequential order –
- Your market analysis, along with specific business practices
- The marketing plan for your business
- Implementation, or how you plan to implement your plan
- The financial plan (you will need your accountant’s help with this part of the business plan)
- Important assumptions
- A closing statement
Where to Begin?
Once more, all of the aforementioned sections should broadly lay your complete investment business on paper. Creating a plan is time-consuming and detailed. However, without the plan, you are paddling upstream without the proverbial paddle. You can simplify your plan by using an easy-to-understand template. An example of this kind of template can be found by following this link.