Success in the real estate industry doesn’t happen overnight, and it also doesn’t happen without proper planning. Thus, developing a real estate investing business plan is a step every new property investor must take. This article will provide the necessary steps to get started, what needs to be done, what resources are required, and what to expect. Thus, a good plan acts like the roadmap that gives you directions and keeps you on track to succeed. It’ll keep you focused toward reaching your ultimate goal of building a real estate investment portfolio. Thinking about writing your own real estate investing business plan? Here’s a list to get you started.
Real Estate Investing Business Plan: Goals
The first section of a good business plan for a real estate investor is simply explaining what you hope to accomplish from this business. The goals that you set should be SMART (Specific, Measurable, Achievable, Realistic, and Timely). For example, to earn $3,000 a month in rental income, or to fix-and-flip one investment property a month, or to buy and rent two investment properties each year. By having a clear picture of where you want to be in the future as a real estate investor, you’ll have a better understanding of the investment decisions that you should make to reach that goal.
It’s important to remember that each goal will have a time frame. Consequently, it’s a good idea to think ahead in terms of short-term and long-term goals and to include them in your real estate investing business plan. Also, avoid abstract or subjective goals like to retire early, to get rich selling real estate, or to be the best. If your goals for the future are blurry, you’ll never know when or if you’ll achieve them.
Real Estate Investing Business Plan: Investment Strategy
Now that you know why you’re investing in the business and what you want to achieve, the next section of a real estate investing business plan includes your strategy to reach those goals. In other words: How will you turn an investment property into profits? Do you want to buy-and-hold real estate, invest in short-term investment properties, fix-and-flip properties, or another investment strategy?
To learn more about your options for investing in real estate, read this: Top Six Real Estate Investment Strategies.
The right answer depends on:
- The Real Estate Market: Property investors should research and analyze their market to determine if it’s a good location to buy an investment property. Find out the median property price, average rental income, occupancy rate, and potential return on investment in your real estate market. Will these allow you to reach your goals? If not, you’ll need to research other markets.
- Type of Investment Property: This is where things should be specific. The real estate industry offers multiple types of investment properties. There are single-family homes, multi-family homes, vacation rentals, condos, townhomes, etc. Analyze the potential of each type for reaching your short-term and long-term goals and set your mind on only one as a start. It’s better to do one thing well than five things poorly!
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Real Estate Investing Business Plan: Financial Plan
Financing a real estate investment is a major concern for beginner property investors. To set a good financing plan, you first need to assess where you stand financially today. How much cash do you have? Do you have any equity that you can tap into? You may be capable of buying your first investment property with cash, or you may need to consider alternative financing options. Your real estate investing business plan should clarify the exact model of financing.
Knowing how you’ll complete the purchase is going to keep you from deviating from your original plans and goals. Moreover, when setting a financial plan, it’s also important to include expenses like repairs, taxes, property management, insurance, mortgage payments and interest rates (if you’re taking out a loan) and be specific about how you’ll cover them to assure generating positive cash flow. Additionally, make sure to update your financials as your business grows.
Real Estate Investing Business Plan: Marketing Plan
Owning a rental property is great, but what’s the point if potential tenants or buyers can’t find it? This section of the real estate investing business plan will cover how you intend to market your investment. To have an effective marketing strategy, property investors first need to target a specific audience. For example, are you renting out to millennial tenants or baby boomers?
The next step is to point out what’s special about your rental property and differentiate it from others. Moreover, make sure your marketing plan appeals to and reaches your target audience. Millennials, for example, now use technology to search for their next rental property. Thus, make sure to include social media marketing on platforms like Facebook and Twitter in order to reach as many potential tenants as possible.
One last thing to remember in this section of the real estate investing business plan is to set a budget for marketing. The total size of your budget should be based on the size of your target market and the media you choose to advertise on. Don’t go overboard as these costs are part of your rental expenses which will affect your cash flow.
The Bottom Line
Successful property investors treat their investment as a business, which is why they develop a real estate investing business plan before anything else. Keep in mind that a business plan is not a document set in stone that you complete once and never look at it again. A real estate investor should continually review and update his/her business plan as his/her real estate investment portfolio grows and new information comes in.
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