Do You Have a Real Estate Business Plan?

December 24th, 2015 | Articles,Real Estate Investor Tips | 22 Comments »

Do You Have a Real Estate Business Plan?

Real Estate Business Plan 1It is common knowledge that  70% to 80% of new businesses fail within their first year. This factor may be higher when factoring individual real estate investing businesses. And even if you have moderate success your first year, half of any business or individual real estate investor who survives the first year will fail within the next four years. Why is this so common?

The primary cause is lack of business planning. We are all familiar with the saying: entrepreneurs and business owners don’t plan to fail, they fail to plan (which causes them to fail).

There are basically two types of business plans. There is the business plan companies create when initially starting a company.  This includes market research to determine market size to ensure the opportunity is big enough, analyzing customer segments to confirm that customer needs match the company’s proposed product and/or service offerings, plus the analysis of the competition to determine how your company will position itself and how you will most effectively compete.

This is standard for start up businesses.
So now let me ask a question to individual real estate investors…

Why do so many individual real estate investors jump virtually blindly into their local or out of town real estate markets without doing the proper market research to understand whether or not their business will actually work in their market?

From a strategic standpoint, doing market research to understand the market you are choosing to work in, who your customers are, where they are located and what they actually need is critical to business viability and long term success.

Your real estate business plan must also document your marketing plan (how you will find properties, tenants and buyer/sellers), your human resources plan (who you will hire to help you) and your operations plan (what key milestones you will accomplish and when).

When you’re done, your business plan will confirm your market opportunity and give you a road map to follow. It will also help you should you wish to gain funding from lenders.

There is a second part of this plan in order to build a significant portfolio.

Every real estate investor ultimately runs out of their own resources. For most, it’s after acquiring 1, 2 or 3 properties.

This type of business plan is more of a  “strategic plan.” This type of plan is targeted specifically at potential investors. Investors are key to your property portfolio growth. Using your knowledge is the key to building an investor database.

Specifically, this strategic plan needs to identify precisely:

1. Where you want your real estate business to be in five years
2. What you need to accomplish within the next year to progress you (and your investors) to an acceptable point, and…
3. What your strategies you will use to complete your key milestones in the next 12 months

In determining the optimal strategies, you need to consider your knowledge, strengths, plus a have true understanding of the real estate market you have chosen to work in and recognizing the opportunities within that market which can be best leveraged.  If you don’t take time to do this, you risk becoming like the average speculator. That is, you continue to use the same tactics that the masses use, the more exposed you are to circumstances outside of your control.

So, spend time figuring out the best strategies to follow based on the market you are in and document this in your business plan which you present to your potential investors. The good news is that if you’ve already proven you can successfully do a real estate deal, you can build on that experience.

To start, you need to create your real estate business  plan. Importantly, your marketing plan should always be adding new marketing channels (e.g., direct mail, print,  search engine optimization, etc.) to find more properties, tenants, sellers etc.

Next, consider your human resources strategy. What new people will you need to hire to accomplish your key goals in the coming years? And finally, you need to develop your operations strategy. Figure out what key tasks and milestones you need to accomplish over the next year to locate more investors and more deals.

Creating a business plan when you start your company, and annually creating strategic plans to grow your company is absolutely essential to your success. If you want to avoid failure, make sure you are continuously updating and following your business and strategic plans.

Contact me for a 15 minute consultation.