Real estate investment is a very lucrative business when its done correctly. But as a new investor, you may not have the required start-up capital to launch a real estate company and immediately buy a few properties at the start. However, that is where a business loan comes in handy. Obtaining a business loan requires a business plan with the financial institutions or local banks. Therefore, the importance of a business plan for real estate investing cannot be underestimated in any way. With this article, we hope to provide some information on the importance of a business plan for real estate investing.
Financial institutions or banks may want to know the type of real estate business that you plan to set-up. In fact, they will want to know your expertise or specialty. For example;
. You may want to buy real estate and develop them into office spaces and lease them out.
. Or you may plan to flip residential properties and make money
. Or develop apartment complexes, healthcare facilities, restaurants, and so forth.
Having such a niche is important since it shows to the financier that you understand your specific market well and you are ready to handle whatever risks you may face. On the other hand, a business plan will serve as a roadmap giving you all the guidance along the way in terms of troubles and how one can mitigate the uncertain waters. And it shows that you have a good idea of what you are trying to achieve and how you will go about doing it with minimal financial losses. You may have already heard the old cliche about the “location” being the key when it comes to real estate investing. Hence, your real estate business plan should show where you plan to buy these properties. In fact, the plan should contain maps that detail’s the property value, the current prices around there, and an indication of what they will be worth down the road like one, three, and even five years from now. Information about the surrounding areas such as what currently exist and how they are being developed in the future is also an important factor when it comes to a business plan for real estate investing.
Most likely a real estate investor might want to work on a solo basis, however, it is very rare for that to happen. In fact, a real estate investor will understand in real estate investing it’s a complex business and that it involves legal expertise, accounting, contracting, and construction. With these in place, the financial institution and lenders will and may want to know about the partners who you are involved in your projects. They can be reassured that you are working with the right team under such circumstances. On the other hand, profits and projections are also important just as the methodologies that you have in place and plan to reach these goals. You should show the lenders how much it will cost to operate the business within the first few months – with detailed monthly expenses and breakdowns. The lender may also want to know how much money you need to buy your first few properties. There should be projections on how long the business will take to break even and start making profits. Here is a summary of what should be included in a real estate business plan.
The Mission Statement
The mission statement is what tells the lenders the purpose of your real estate business. It also states the benefits that your business will provide. You should spend time researching similar business mission statements when developing your own statement.
Goals
What will your business help you achieve? Your income goals – broken down into monthly and annual goals. You should be creating short, medium, and long-term goals for your real estate business. This will help create momentum and reduce the stress involved in focusing on big goals for your business. In fact, when you break down the goals so that they don’t seem too large to conquer, you can stay motivated along the way.
Market
The location of your investment is very important when it comes to real estate investing. What is the city, town or neighborhood you plan to buy property? What type of property do you plan to buy? When you are starting out, you should select a location that is close to your home. In fact, you should be comfortable with the location that you select. You should have easy access to the property, especially when you are starting out as a real estate investor.
Time Frame
What is the time frame you plan to achieve your goals? This is important to keep you motivated and make sure that you are staying on pace.
The Strategy
There are many strategies that you could use to make money with real estate. You need to select one strategy and master it properly when you are starting out in real estate investing.
Exit Strategies And Backup Plans
- Exit Strategies – are one of the most important parts of your business plan. These are important things to consider when devising an effective business plan for your real estate investing business.
- Backup Plans – a backup plan is even more important than a business plan. Having one in place actually tell financial institution or lenders that you are precise and through.
Even in this age and day, real estate investing is still a lucrative business provided that you have an excellent business plan and strategies in place. As we have stated above, a new investor may not have the initial start-up capital to launch the business right away. Thus, having a business loan may help you launch the business. So here we would like to reemphasize that you really need a sound business plan in place first before investing in real estate as a prerequisite.
Thanks for reading and I would really hope for your financial success.