When it comes to investing in real estate, there are many things that you should do before even looking at properties. At some point, you will need to write a business plan. Often thought of as a map of a business, these plans work as a guide. The plan should be fluid. As circumstances change, so can the contents of the business plan. Not only will you, as a business owner, want to review this periodically, investors will also want to review the plan. At Jason Cohen Pittsburgh, we start every investment with a written plan.
Normally business plans are divided into smaller sections allowing the writer and the reader to focus on the section that is most important at the time. The most common sections are a mission statement, goals, strategy, market, criteria, exit strategies and backup plan, and financials.
The mission statement is possibly the most important section of a business plan. It should answer the questions of why, what, where, how, and when. If you are at this point, you have most likely answered most of these questions — it’s now you need to write them down. Though it will lead the business plan, the mission statement is usually written last. It will serve as an executive summary of the entire report. If you are presenting this to investors, the mission statement may be the only section they read. Grab their attention in this section by giving a solid statement of your business.
The goals section should be as concise and as clear as possible. The goals should be tangible, so you can track success. Separate the goals into short-term and long-term. Remember, you can always update this section as the world around you changes and you adapt to it.
Following the goals section, define your strategy. This section will answer what type of investment property you plan to use to create a profit. This can be a single-family home, multi-family home, a small apartment building, or a large apartment building. When you start your business, stick to one strategy. By picking one strategy, you can master it. After you are experienced in real estate investing, you can diversify into multiple strategies.
A definition of the market area should be a section included in a real estate business plan. By dissecting the market in which you will execute you business, you will uncover possible risks. This section should answer questions about the demographic of your market, the future of your market, and the competition within your market.
The criteria section will give you a chance to go into details about what type of deal you are looking to use as an investment. Define the maximum purchase amount, the maximum rehab amount, and the maximum timeframe to hold on to the property.
An important section to include in your plan contains exit strategies and contingency plans. This section is not only important to you while conducting business but investors tend to focus on this section. Detail whether you plan to buy and hold, flip the property, rent the property out, etc. To cover all your bases, imagine multiple scenarios and multiple exit strategies.
Include a section containing a description of the financials of the business. The financial section should include a listing of any equity that you can use and a summary of the financials at a point in time. You can either include how you plan on finding financing in this section or add a separate section.
Organize the sections in the best way that you see fit, but always lead with the mission statement. By taking your time writing this plan, you can use the real estate investment business plan as a tool while going through the day-to-day operations, like we do at Jason Cohen Pittsburgh. Not only can a good business plan entice investors — it can help you build your business with cohesive strategy and goals.