5 Fundamentals Of Any Real Estate Investing Business Plan
By JD Esajian on November 17, 2017
If you wanted to drive halfway across the country to a certain destination you probably wouldn’t just get in your car and go. You would most likely spend some time mapping out the best routes, potential stops and how much money you would need to get there. You would allow for some degree of spontaneity, but you would always have a plan to revert back to. The same is the case in starting a career in real estate investing. There is nothing stopping you from blindly throwing out offers but without a plan of attack you will quickly find yourself in trouble. Your investing roadmap should be like the blueprint you would have for any new business. This plan will help guide your during tough times and keep you focused in dealing with success. The best investors take the time to think out a plan of attack prior to doing anything else. Here are five fundamentals to any real estate business plan.
- Why are you getting started? Sounds like a simple enough question but many investors are stumped on an answer. They will say things like “I want to make money” or “I want to invest differently” without knowing exactly what they are getting into. How you answer “why” dictates almost everything else you do in your business. Do you want to make money as a form of primary or secondary income? Do you want to build a portfolio of rental properties or are you interested in flipping houses? Were you recently laid off from your job and need to support your family? Are you looking for residual income on a few deals a year? Whatever the reason you are getting started there is nothing holding you back. However, before doing anything else understand why you want to be in real estate and what you are looking to get out of it.
- What are your goals? Your motivation for getting started usually overlaps with your goals. If you talk to two investors in the same market they may have two completely different sets of goals. One investor may want to flip a half dozen houses a year while another may look to buy a single rental property. One strategy isn’t better than another, it is all based on personal preference. Where investors usually get in trouble is when they start looking for deals that don’t match their goals. If you clearly define what you want from the business 30, 60, 90 and 360 days out you have a much better chance of being successful. You will only look for deals that fit your criteria and ultimately match your goals. Your goals may, and probably will, change over time but when you are just starting out you need to not only declare them but follow them regardless of whatever else is going on.
- What is my strategy? One of the most eye-opening aspects of investing in real estate is in finding deals to work on. Just because you want to flip a house doesn’t mean one will suddenly fall on your lap. You may be able to find a rare deal on the MLS or through personal contacts but for the most part you need to go out and find them. This means coming up with unique marketing campaigns or ways to get your phone to ring. Fortunately, with social media and increased marketing options there are literally dozens of ways you can utilize to find deals. Whatever you decide to use you need to give some thought to prior to getting too far. It is not cliché to say that you are only as good as the leads you produce. Without a clear marketing strategy, you may be tempted to jump at the next available deal that comes your way. Take your time and research the best way to find deals in your preferred market and at your price. Without a solid marketing strategy even the best investors will struggle.
- Do you have a timeframe? We live in a day and age when everyone wants things done ASAP. However, in the world of real estate things don’t always move as fast as we would like. A deal you secure today might not realize a return for months down the road. It is important that you not only understand this but plan for it as well. Most rehabs take anywhere from 30-90 days to complete. Once completed you need to put the property on the market and wait for a buyer. Ideally, they would come within a week of listing but that isn’t always the case. With a rental property you can start receiving cash flow from the first month of renting, but the big return won’t be for years down the road.
- Where do you want to invest? Once you nail down the first four questions your ideal market should fall into place. In your early stages you should narrow your focus down to just a couple of markets. That way you won’t run from property to property every time there is a new lead. The market you invest in should fit with the property types you want to purchase as well as the purchase price range. It should have an ample supply without property being too abundant. You should know the sub pockets in the region, so you don’t have to waste time researching the area. Where you invest will define the type of investor you are and to a large degree your potential returns.
Regardless if you close a deal a year or one a month you should have a business blueprint behind you. Without a plan you are just a passenger in the car instead of being behind the wheel.