Learning how to draft your business plan can be a daunting task. Especially if you’re somewhat new to crafting a real estate investment business plan or any kind of business plan at all.
The key is to find the balance between spending enough time developing a proper real estate investor business plan. But not SO much time working on theory and organization — that you neglect your other investor duties.
And how do you know what should go into a real estate investing business plan? What key aspects must you cover in your real estate development business plan? (And what areas can best be left on the business plan cutting-room floor?)
Though writing a comprehensive business plan is a thorough topic, here is a quick guide to learning how to draft your business plan in an effective — and hopefully profitable — manner.
Draft Your Business Plan for Success
1. Find your value
By “value,” we don’t mean your net worth or your value as a human being. (Although those qualities can be important.) Instead we mean the value you bring to the real estate marketplace.
And this is best described in what business-school manuals call the unique sales proposition (USP). You find this by answering questions such as:
- What value do I plan to offer customers/clients? (Starter homes for new families, college rentals, etc.)
- What problems/challenges will I be solving?
- What emotional needs will my business take care of? (Not always the same as an immediate problem)
- What unique characteristics do I bring to the table? (Quality renovation, educational content, etc.)
2. Customer segments
The biggest mistake most investors make when creating their business plan is thinking their ideal customer is anybody and everybody. Not only is it impossible to serve all customer segments, but the more focused and niche your customer base is, the easier the marketing will be to execute.
Here are some questions to consider when developing the customer side of your business plan:
- Who is your ideal customer? (Hint: the person for whom you can provide the most value.)
- What’s the demographic and psychographic make up of your ideal customer?
- What sections of the real estate market will you focus on? (And which will you avoid?)
3. Revenue models
There’s no point in creating a business plan for a business that doesn’t make money. By laying out, clearly, how your venture will make money not only will it help stress-test your business idea, but give you a clear path to eventual profitability.
This means considering revenue questions such as:
- What are the numerous different ways customers/clients will pay you? (Rental income, finder’s fees, etc.)
- What are they currently paying in the marketplace today?
- What are your revenue projections for the next 30/60/90/365 days of your business?
- What areas of your business model depend on fixed pricing? (Brokerage fees, ad costs, etc.)
- What areas of your business model depend on variable pricing? (Negotiation, market conditions)
4. Marketing channels
It’s good to know who your customer is, but equally important is knowing how to reach your customer. And this means doing some customer research, and a little bit of creative brainstorming, to find the best way to reach the folks you serve best.
Good questions to ask, when trying to flesh out the marketing channel part of your business plan, include:
- Which marketing channels would reach your desired customer segment best? (Direct mail, door-to-door, social media, etc.)
- How are these customers being reached now?
- Is there a way to integrate these channels together into one cohesive funnel?
- Which, historically, have worked best? Which have not?
- What key elements do I need – such as a website, landing pages, social media profiles, marketing manager – to have in place to hit the ground running?
- How will I track my results in this area?
5. Existing partnerships/resources
Aside from a clear plan of how to make money, compiling a list of key partnerships and resources that are vital to your venture, might be one of the most important parts of your plan. (Whether it be a real estate flipping business plan or even a business plan for rental real estate investing.)
Most new investors know partnering up in real estate is simply a day-to-day requirement of the business. But until you write them down, it’s hard to know exactly what you already have in place. (And what you need to start developing.)
Here are a couple questions to consider:
- What key partnerships do I already have in place? (Contractor, agent, lawyer, etc.)
- What key partnerships do I need to work on acquiring? (Wholesalers, agent, property manager)
- Is my entire business model based on a partnership in the traditional sense?
- Do I have the proper partnership agreements in place?
- What key resources — either intellectual or literal — do I need to execute my value proposition?
“I love it when a plan comes together”
The benefits of a real estate business plan are numerous. There’s the clarifying quality, in which you take the abstract concepts of how to make money with your venture and break them down into concrete, tangible steps you can take action on.
There’s also the added benefit of being able to use a focused, fleshed-out business plan to convince sellers, fellow investors, and sources of private money to share your vision and join your venture.
But perhaps the biggest benefit of all is by learning how to draft your business plan, you’ll realize what’s missing in the architecture of your business. What areas you need to work on before proceeding forward. This will save you time, money, and more than a few sleepless nights in your quest to becoming a full-time real estate investor.