Rough Draft of Business Plan

6 Replies

I'm in the process of ironing out my business plan, and would like some feedback on what areas I should focus on. Some of this is me just starting to put ideas on paper, and it's still in its raw form. Any ideas would be helpful. 

Real Estate Business Plan

Mission Statement

The purpose of the business is to identify properties suitable for renting out. The business will identify, rehab, rent out and maintain the properties.

I am in business to establish enough income to give me and my family the option to not work anymore. I want to provide the community with nice, clean rentals that add value to the community.

Strategy

The strategy is to identify buy and hold investments to rent out. The goal is to identify single family homes, multi-family homes meeting something recouping costs and recurring costs within 3 years.

Market

The market will be my Local Market in Orlando, FL.

  • Single Family homes – 100K to 180K
  • Multi-Family homes – 100K to 180K

Criteria

  • LTV – 95% or less
  • Cash Flow – 200+ dollars a month
  • Cash on Cash Return – 12% or higher
  • Rehab Amount – 10K
  • Max Time Frame to rehab is two months after purchase

Finding Deals

Deals will be located through a network of realtors, craigslist, biggerpockets marketplace. Also, I may contact local title companies and get on their lists.

Marketing Plan

I plan to market my properties through craigslist, and with local realtors. I may use a property management company.

Source of Funding

I plan to start out with conventional loans.

Downpayment Funding Sources

  • Savings
  • Home Equity Lines
  • 401K Loans
  • 2nd Mortgages
  • Roth IRA self-directed options

Deal Structures

The deal structure will be to

  • 1.Acquire the property
  • 2.Rehab the property as necessary
  • 3.Rent out the property
  • 4.Try to keep tenants for as long as possible
  • 5.Maintain the property
  • 6.Rehab the property during turnover
  • 7.Keep repeating until a sale or more renters

Exit Strategies

  • 1.Buy and Hold and use home equity lines of credit to fund future deals
  • 2.Buy and Hold until the rent is 0.5% of sales price
  • 3.Buy and Hold and sell to invest in a down stock market.

Team and Systems

Team

  • Realtor
  • Contractor
  • Handyman
  • Real Estate Lawyer
  • Accountant
  • Mentor
  • Think Tank
  • Mortgage Broker
  • Title Rep
  • Insurance Agent
  • Property Manager

Systems

  • Automated Payments
  • Automated Maintenance Request System

Example Deals

  • 1.Identify a property, say 100K that can rent for 1200 a month.
  • 2.Rehab the property for 10K within a month
  • 3.Look for renters.
  • 4.Place renter in the home with a year contract.
  • 5.Renew the lease. If they are good tenants, rent will be raised minimally.

Financials

I plan to start looking within 6 months to a year from now. I have some equity in my primary home I may be able to use, and retirement accounts I can take loans against. Also, I may consider carrying a second mortgage as some banks are including this as an option. 

@Eduardo C.

I have had some experience putting together business plans in the past for a couple of my own small businesses (these were 30+ page business plans critiqued by CPAs and local business mentors), and here are some pointers:

  • Make sure to use phrasing that portrays confidence and action. For example, when you said "I plan to market my properties through craigslist, and with local realtors. I may use a property management company", maybe it should be more like "I will market my properties through local realtors, Craigslist, Zillow, Realtor.com, and other platforms to ensure a rapid turnaround. Additionally, to increase my deal flow, I will use local reputable property managers to manage the day-to-day activities of my rental properties."
  • Include 1 year, 5 year, and 10 year goals so that investors can see your passion and how you are going to be successful.
  • Include some type of spreadsheet that shows a pro-forma analysis of how you will get to your target number of properties using an assumed ideal property. 

I hope this helps.

PM me if you want to see the spreadsheet that I have been using to show proforma cash flows.

Hello Eduardo,

It sounds like you are off to a good start.

The only commentary that I have is:

  • Consider 15k - 20k in rehab costs. You can definitely buy with less but you should plan for at least a medium sized renovation project. 
  • If rehab to rent is your strategy pull out your invested capital when the rehab is complete and the property is rented. Three years is a long time to recoup your initial investment capital when you have assumed the renovation risks.  

All the best. I am in Orlando as well. Feel free to connect with me.

Originally posted by @John Kent :

Hello Eduardo,

It sounds like you are off to a good start.

The only commentary that I have is:

  • Consider 15k - 20k in rehab costs. You can definitely buy with less but you should plan for at least a medium sized renovation project. 
  • If rehab to rent is your strategy pull out your invested capital when the rehab is complete and the property is rented. Three years is a long time to recoup your initial investment capital when you have assumed the renovation risks.  

All the best. I am in Orlando as well. Feel free to connect with me.

 John,

Thanks for the advice. Any good methods for pulling out the capital in the property? Do you take out an equity loan?

Originally posted by @Eduardo C. :

 John,

Thanks for the advice. Any good methods for pulling out the capital in the property? Do you take out an equity loan?

 Eduardo, for single units refinance into a conventional or private investment loan. For multiple properties you can use a blanket loan or sell off a property. You can also sell off an extra lot or build on the lot and sell off the new building.  Multifamily > 4 units can be combined with subordination to pull your invested capital out if you are structuring your purchase. 

@Eduardo C.

Good to see you're putting together a business plan. I completed a few of them and I am working on one now (about 30 pages+ and it's actually a marketing plan). I would for sure add some research to why you're going to be executing some of the initiatives in your plan. For example, research supporting why you're focusing on homes in the price range of $100K-180K, why you plan to market your properties through Craigslist, etc. because someone other than yourself may be looking at your plan at some point and they need to know the method to the madness.

Good points to research are:

- How fast are homes selling in your target price range

- What is the median income of the local population

- What is the median family size of each household

- Where are the best neighborhoods located; best schools

- Marketing: how are you going to convert leads into sales? What will be your process?

- Priority of funding sources: dip into savings over a 401k? Or vice versa? No money down possibilities

- Identify title companies in your area and what they can provide; prioritize

- Identify contractors, agents, lawyers (talk to them personally and find out what they're about); identify reputation

 - Financials: is your business going to establish it's own credit and ways to find funding without your personal funds? Research ways to obtain business funding

This is time consuming but it's worth it and important. As a matter of fact, I think for this business, a marketing plan is more appropriate since REI focuses heavily on marketing. The bottom line is know your local area and understand it. To do that, you may have to do some valid and valuable research and add it to your plan to back up everything you're saying you're going to to.

Goal - purchase houses to make more money

how to get there - do whatever it takes. even if it's working on the house after kids go to bed until 3am and pick up materials at 6am. save every penny you can until you can afford to hire it out.

the end.

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