In Part 2 of our Property Investment Series we will focus on your business plan, which will be your road map to success.
In part 1, we looked at four basic categories a new real estate investor will need to consider when purchasing their first investment property. Now we’ll discuss your real estate investment business plan. First and foremost, it doesn’t need to be perfect, it doesn’t need to be all-inclusive, in fact….it shouldn’t be. Never let planning get in the way of action. That is not to downplay the importance of planning, but rather to add emphasis to ACTION. Throughout history, many great ideas have smoldered and fizzled out due to lack of action; many times, because the dreamer is waiting on perfect circumstances. We’ll talk action more later, but for now…back to planning.
Typically, business plans should take the reader through a 3-5 year plan detailing everything from company structure to financing. Calling in reinforcements, or your network, is a must during this phase because it is unlikely you will know the best decision for all the options you have when creating a business from nothing but your thoughts. Tax implications, financing options, liability mitigation, operating structure, licensing, marketing and sales, differentiation, and projections are some topics that will need to be addressed in various detail when forming a business plan. Professionals spend an entire lifetime learning each of these skills, so it is doubtful that an individual will have the requisite knowledge to perfect each of these in a business plan. My point is: Get help where you can but press on with forward progress.
Real estate is unique from other investments in some manners, but akin in others. One significant barrier to entry for many is that it requires up front capital. As the old saying goes, “It takes money to make money.” Since most new investors won’t have the liquid assets required to start with a large scale operation, the growth of a real estate company will likely take longer than other companies, so it may be appropriate to start with a longer initial plan than the 3-5 year term. Again, every case is different and unique, so adapt your plan to your specific situation.
It is very difficult to give details on a specific business plan for every investor because there are an endless list of paths that can lead to success. Each investor must review their SWOT, which is: Strengths, Weaknesses, Opportunities, and Threats. Recognizing these and accepting them will help with focusing on your competitive advantage, and outsourcing where necessary.
After you have created a plan, it’s time to present to your “Devil’s Advocates.” Taking criticism constructively is imperative in this phase because it can feel like others are calling your baby ugly at times. Make sure you trust your instincts but maintain an open mind and accept input. This is the reason the saying “Two heads are better than one” exists. Accept advice openly and tweak as desired.
Since I probably lost most people two paragraphs ago, I’ll end it here, but the importance of a business plan can’t be overstated. At the very least, use it as a device that keeps you on a path that is moving you closer to your goals. Think of it as your inanimate accountability partner.
In the next part, we’ll discuss developing your strategy. This will be an integral part of your business plan and will focus on the “How” part of growing your revenue.
To review the first article you can click HERE.
Written By Kyle Sain, the co-owner of Affinity Property Management