Real Estate Investor · Brockton, MA · Member since 2015 · 31 posts · 2 votes
Hey BP,
I'm currently writing out my business plan. I'm at two pages and I think its going well so far but I would just like to hear any advice you all may have for me.
What is crucial to include? How long are your business plans? What specifically attracts lenders and investors? etc. etc.
@Account Closed , for the purpose of real estate investing in general, I don't know that you need a formal business plan at all. Guidelines are certainly useful, but don't tie yourself up in the formalities. I did that for the better part of a year, and honestly looking back I feel that it was unnecessary. Just learn, learn, learn and go forward (preferably simultaneously). Best of luck, and keep at it!
I agree with @Chad Clanton in regards to having a proposed, concrete business plan may keep you from excellent unforeseen opportunity.
@Account Closed Nonetheless, I find it important to have a goal oriented plan. What is your objective outcome? Cater that objective to your market to make your goals realistic and to determine the most effective deals you can aim to acquire.
@Account Closed Griffin is definitely correct in that you have to have some sort of idea where you're going. I finally got around to listening to podcast #92 with Brandon, and just started listening to the book "The One Thing" cited in the podcast. It's about cutting down on the clutter, the things we think we "have to do", and instead doing the things which actually take us there, highest priority down. I just looked at my "to do" list (mine's electronic because I kill so much paper re-prioritizing throughout any given day) and found that I've completed over 150 items in the past month. Of those, I'm thinking only 10-15 of them really, truly furthered my business.
It's easy nowadays to put "established and accepted" form over function (Go go Gadget Powerpoint!). I spent months setting things up to invest when I first started, and should have just gone for it. Don't be haphazard, but don't get caught up in the things that don't matter. Establish a goal and go for it; good luck and don't forget, lots of folks here to help!
If you want this document for your own use to guide your efforts and compile your goals and measure your progress, two pages is probably a little short (depending on the detail that you include)
If you plan to show this to partners ... funding partners in particular, two pages is too long.
A funder wants to read a concise statement of what you have (the property), what your goal is, what you bring to the deal (both money and skills/effort) and most importantly, what profits the funder will make.
If you want to share it with a service provider (property manager, tradesperson etc ... although I'm not sure why someone in those positions would want to read a written plan), two pages is also too long.
Look for Eric Drenckhahn's blog here on bigger pockets. Every month Eric details what happened the prior month with his rentals, where his cash flow stands and his retirement savings with a count down of his days until he retires from his other job, and what he expects for the coming month. This allows him to track and others can monitor his progress. Eric is accountable. His "business plan" changes every month but the goal is still the same.
I sat down to make a business plan a few months ago when starting out buying. It turned out to be pretty much goals to achieve. That said its completely changed already because an unforeseen opportunity presented itself and I bought a duplex 6-8 months before I was intending to buy my first investment property. That changed all my goals and increased the number of properties I plan on buying this year and every year thereafter.
I recommend setting initial goals then have a basic idea of where you want to be in 10-15 years. It will change but at least you have a starting point.
I don't plan to make it anything that is out of this world detailed. I just want to create an outline JUST in case an investor or lender asks for one. I guess that's just me wanting to be prepared. But you all are right in saying that there is no need to spend crazy amounts of hours on a plan.
To me, I think the key to any investor would be to show them your intended business model in terms of what you're going to do:
1) INVESTING STRATEGY. Are you going to flip or buy and hold? Both.
2) AREAS OF INVESTING. Define the areas you're going to be looking to buy in and why? i.e. Bradley, Bourbonnais, Manteno, Peotone, Beecher, Monee and Braidwood. Good schools. Good renter pool. Solid rent to purchase price ratios. Good potential for reasonable appreciation in these ares.
3) TARGETED PROPERTY TYPES. Define the properties you're going to try to buy for each (i.e. Flip, and/or buy and hold deals)
i.e. a) Square footage. (1,200 sq ft or more) b) Bedroom count (3 or more bedrooms) c) Year Built (1970 or newer) d) Estimated appraisal value once rehab is completed (120k to 160k) e) LTV at 70% or better f) Target gross monthly profit $400/mo or more.
To me, if you provided that kind of outline for your business model, then an investor would have a real good idea whether that might be a good fit for you. And, for yourself, it would have a real good starting point for what you're going to be looking for.
Doesn't mean you can't deviate from that. Maybe there's a 3/2, 1,400 sq ft house that is going to have an ARV of 100k - but one that you can pick up for 50k and will make you $450 per month gross profit.
The ARV doesn't meet your goals, but it still may be a really good deal. Still, by coming up with your 3 key points above, you should be able to provide an investor, a lender, a realtor/wholesaler and yourself with a real good starting framework of what you're doing and what your typical deals should look like.
Possibly, one thing you could add a 4th item as your short and long term goal. i.e. 4) SHORT AND LONG TERM GOALS. Short term goal is to do 1 flip per year and 2 buy and hold deals. Long term, the goal is to acquire 20 buy and hold rentals over the next 10 years.
The business plan is for you personally (think of it as a GPS) and of course may be useful from a lending standpoint. In it, you want to convey to lender (or your funding source), what you are trying to do and most importantly, how they will be getting their money back.
Perhaps a trip to any library or search online for examples of business plans may lead you to a plethora of materials that should show what the anatomy and structure of a business plan should look like. The lender will of course pay very good attention to the financials section.