I spent fifteen years in the construction industry before I decided I wanted to get into real estate investing. I knew houses; I built them before. So I thought I had all my ducks in a row.
But three months into my first project, I was bleeding money. I found myself on Google, desperately searching for what went wrong. As it turned out, having a business plan for real estate investing isn’t optional. In fact, it’s the first thing you should do.
I had the skills and I had the knowledge, but I had no idea how to get funding. I started with my own cash—and quickly ran out. Then, I had to deal with expensive, last-minute debt via my personal loans and credit cards.
So, my first project went into the red. But my second, third, and fourth ones didn’t because by then I had a plan.
Why Do You Need a Business Plan for Real Estate Investing?
A business plan serves as a roadmap for your investment journey, laying out your goals, strategies, and expected financial outcomes. In my case, what I needed was a risk assessment.
A lot of people come to real estate investing with some cash in their pockets. And many of us have some background in real estate, whether it’s as an agent or as a builder. We think we know everything, but a business plan is more than just busywork. It guides you when things go wrong. Here’s how to create your own in five steps.
1. Define Your Investment Goals
The first step in creating your business plan is to define your investment goals. Your investment goals will guide the rest of your business plan and help you decide which strategies to pursue. What are you looking to achieve with your real estate investing business? Do you want to generate income, build wealth, or both?
- Income: Raw cash lets you invest in more properties faster.
- Wealth: Equity lets you borrow against it – and builds generational value.
- Both: A mix of both gives you more agility, but not as much as either.
This may seem like an obvious choice, but it’s not. For instance, condos don’t build as much equity as single-family homes, but they often generate more cash flow for rentals. Single-family homes generate less cash flow (frequently because of maintenance costs), but they build more equity.
2. Choose Your Investment Strategy
Do you want to buy and hold properties for rental income? Flip properties for a profit? Wholesale? There’s no right or wrong answer here, but you’ll need to choose a strategy that aligns with your investment goals. Below are some examples.
- Discrete projects
- Can be quite profitable
- Upfront investment in cash
- Continuous cash flow
- Equity building
- Requires constant management
People who buy and hold properties need a lot of equity to put in at the beginning—or it’s frequently not worth it. You also need to be willing to be a landlord, which means vetting new tenants and occasionally engaging in evictions.
I chose to flip houses. As someone in the construction industry, I love discrete, sensible projects that I can move on from. And I love giving someone a new home that I know was well-built and well-designed.
Of course, there’s also wholesaling—the practice of purchasing houses and finding a buyer immediately. But I found that I didn’t have the sales acumen for it.
3. Do Your Market Research
No matter what type of real estate investing you plan on doing, market research is essential. You need to understand the local market conditions where you’ll be buying properties. Ask yourself the following questions:
- What are the trends in home prices?
- How quickly do properties sell?
- Are there a lot of rentals in this market?
- How easy is it to find tenants?
- Is the market growing or shrinking?
You may discover that your chosen investment strategy doesn’t work in your area. Maybe you thought about renting, but you’re in a poor rental market. It’s better to find out now rather than later.
4. Create Your Financial Plan
I hate math, but it’s unavoidable in this business. This is where you start putting numbers into your business plan. How much money do you need to get started? How much can you realistically expect to make? Most people don’t quit their day jobs just yet.
Creating realistic financial projections is critical to the success of your real estate investing business. But it begins by finding the right lenders. Hard money lenders will make all the difference in your strategy as they control how much money you have on tap and how much you’ll need.
Apart from that, experience and expertise will be your guides. If you’ve come from the real estate industry, you will need to properly assess maintenance, management, and repair expenses on a project-by-project basis. If you don’t come from a real estate background, now is the time to learn.
5. Consult With the Professionals
Finally, if you’re serious about real estate investing, you need to set up a business entity. This will protect your assets from any legal liabilities associated with your business. This is the time to meet with a business attorney and a tax accountant to ensure that you’re making the right decisions and taking the appropriate tax deductions.
There are countless stories of house flippers who made their first flips, only to discover that they were losing a lot of their profits to taxes. There are ways to avoid this, but you must structure your company right from the start.
Start Building Your Business with HomeVestors
Why create a business plan for real estate investing from scratch when you can enlist the help of a nationally trusted real estate investing franchise instead? When you become an independently operated HomeVestors® franchisee, you get all the guidance and support you need to thrive in your market.
When I joined, I quickly learned that HomeVestors® is the comprehensive real estate investing solution for marketing and lead generation. Its “We Buy Ugly Houses® ” marketing campaign, proprietary home valuation software, and unbeatable training opportunities all helped me flesh out my business plan and close deals faster.
Working with them taught me so much more about the real estate industry and market dynamics. Plus, I was able to develop my goals and strategies and interface with a large community of investors and business owners who had my back whenever I needed them.
Get your business plan for real estate investing off the ground by contacting HomeVestors® today.
Each franchise office is independently owned and operated.