How To Make A Real Estate Investment Business Plan, And Why It’s Important

A real estate investment business plan is an important step if you’re looking to get started in the industry. A real estate development business plan can help you decide what form of real estate you’re looking to invest in. Real estate has a wide array of opportunities, so it’s important to narrow your focus. It’s very difficult to be successful in several different areas of real estate at the same time. A business plan can help you decide what it is specifically that you’re doing.

What Is A Real Estate Investment Business Plan?

Put simply, a real estate investment business plan is a document that lays out how a real estate investor intends to run their business. The plan should illustrate the investor’s goals for investing in real estate as well as business strategies and timelines they intend to implement to achieve those goals.

There’s not a specific format you have to follow to create a real estate investment business plan. Instead, you can pick and choose sections that are important to you. A business plan is primarily a document that can help you decide what your business is going to focus on, whether that’s rental properties, investment properties or flipping houses. You can also use a real estate investment business plan to help secure funding from investors or business partners.

Why Do You Need A Real Estate Investment Business Plan?

Having a plan is important because it can act as a blueprint or road map when starting a new business. It can also give it a sense of legitimacy when talking about your business with others. This is especially crucial when trying to attract business partners and investors or getting a small-business loan.

11 Essentials For A Real Estate Investment Business Plan

As we mentioned earlier, there isn’t a specific format you must follow when creating a real estate investment business plan. Plans can be as unique as each company they outline. Here are a few sections that you might consider including in a real estate investment business plan.

1. Executive Summary

An executive summary should illustrate things like the company’s mission and vision statement. Depending on how long your real estate investment business plan is, most people are not going to read the entire thing. So, an executive summary should sum up the investment company as a whole and provide a snapshot of the company’s financial plan, marketing plan and other key factors.

2. Company Description

A business plan should include a description and history of the company as well as the target market. This lets people who read the plan know basic information about the company as well as its principal members. The company description section is a great place to give biographical information about each member of the company’s leadership team.

3. SWOT Analysis

A SWOT analysis looks at a company’s strengths, weaknesses, opportunities and threats. Analyzing each of these categories is important to include in a business plan. This will help you make sure you’ve adequately considered each of these categories, and these are things that potential partners will definitely ask about before investing in your company.

4. Investment Strategy

Detailing a company’s intentions with investment properties is another important part of a real estate investment business plan. Real estate is a broad term that covers a wide variety of different activities. Each of these real estate activities is different and will take a different strategy to be successful. This section will stipulate if you intend to invest in rental properties, flip houses, etc.

5. Market Analysis

You’ll also want to include a market analysis in your business plan. This shows potential investors that you know the real estate market. The three most important words in any real estate plan are “location, location, location,” and including a market analysis will show what conditions are like in the areas where you’re looking to invest. Investing in a high-priced area like New York or San Francisco is much different than investing in a rural area with much lower market prices.

6. Marketing Strategy

Most business plans will also include a marketing strategy. The marketing strategy will show how and where you plan on marketing and attracting new clients. The specific area of real estate you’re focusing on will drive how much you focus on marketing. Someone looking to become a real estate property manager will need to do more marketing than someone who’s buying rental real estate to hold.

7. Financial Plan

Your financing strategy and financial plan might illustrate income and cash flow statements. This could include historical records like bank statements or profit and loss projections. You might also include a balance sheet showing the company’s assets and liabilities. The financial plan section is intended to give potential partners or investors a snapshot of the company’s overall financial health.

8. Organization And Management Structure

A business plan should also include a company’s organizational structure, management team and ownership details. These items are mentioned in the initial executive summary; in this section you can go into more detail about each member of the management team. One thing that is good to include here is a listing of the various qualifications, licenses and/or certifications that each member of the team holds.

9. Real Estate Acquisition Strategy

A business plan should include a strategy for acquiring investment properties, if that’s something that the company plans on doing. There are many different ways to buy real estate, so you’ll want to detail which strategy or strategies you plan on using in your real estate investment business plan. Some strategies may include going through a real estate agent or broker, as well as wholesaling and target marketing.

10. Goals And Timelines

A business plan should clearly state a real estate investor’s goals for their company. One way to show this is to make a 1-year, 3-year or 5-year plan. Detail your plans for the business over a variety of different timelines. You’ll also want to include some strategies and details for how you plan on meeting them.

11. Exit Strategy

Having an exit strategy is important for a business plan. This can include items such as knowing if and when to sell an investment property.

The Bottom Line

Having a real estate investment business plan is an important part of owning a business. Creating a written business plan when you’re starting a business will make your business feel more real.

2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

Winston Rowe and Associates

Every month, there are thousands of searches in Google for terms related to: “Is there a housing bubble?” Clearly, it’s a question on many people’s minds.

For this to be a bubble, it’s not just about high prices; investment needs to be driving demand way beyond where it should be.

So, is there a real estate bubble?

I don’t believe there is. Home prices are unlikely to fall by any significant measure. At best, prices will rise more slowly, at a rate that outpaces inflation (just not to the same extreme as this year).

It’s worth keeping in mind that historically speaking, housing bubbles have actually been quite rare. They may feel common because we all lived through one – but the 2007 crisis happened due to a series of events and decisions (such as relaxed lending standards) that would not occur today.

Lending Standards

Have lenders been unscrupulous in who they lend to? It doesn’t seem so. Buyers today are extremely qualified. The median FICO for current purchase loans is about 42 points higher than the pre-housing crisis level of around 700, according to data from the Urban Institute.

There were many regulations and restrictions put in place after the 2007 crisis to help maintain a healthy housing market (such as Dodd-Frank) – and many banks were fined millions and even billions of dollars for their participation in lending fraud. They’re wary of getting fined again and so they opt to hold home buyers to high standards.

Mortgage Rates

Speculation was rampant in the early 2000s. Adjustable rate mortgages, which tempted buyers with low introductory interest rates that rose dramatically once homeowners were locked into paying them, were much more popular (and much less regulated).

When interest rates drop, it encourages more investors to enter the market – because they can risk less of their own cash to do so. However, experts seem to unanimously agree that interest rates are going to rise by up to a full percentage point this year. This will help discourage overly-speculative investing as borrowing becomes more expensive – helping to stave off the possibility of a bubble.

Equity

The housing market collapsed in 2007 in part because many consumers had almost no equity in their homes – people were buying homes with no money down, and the riskiest mortgages required little proof that buyers could actually afford them.

When the housing market was good, it was easy to simply turn around and sell your home if things didn’t work out. But once the market dipped, many people discovered that their loans were worth more than the homes themselves. Since they had almost no equity in their homes, this meant they couldn’t sell without going into debt – making foreclosure the only option.

Today, the average homeowner has over $150,000 worth of equity in their home – an all-time high, which is good.

Supply

In the years leading up to the housing crash, new home construction outpaced demand – which contributed to home prices dropping precipitously. Since then, however, new home construction has lagged behind, failing to keep up with a growing population.

According to the National Association of Home Builders, the U.S. went from averaging between 9 and 11 million housing starts per decade throughout the 1960s to 2000, to just under 7 million homes during the 2010s.

Increased building regulations, the rising price of lumber/materials/labor, and lingering hesitation due to the crash all contributed to this – and as homes became more expensive to build, home builders were incentivized to build luxury homes rather than starter homes. While the construction industry seems to have hit a recovery point (almost a million homes were built last year), it will likely take years for supply and demand to balance again.

Will Home Prices Drop in 2022?

I’ve talked to experts in multiple real estate markets throughout the country. While some areas are hotter than others, one trend remains clear: demand is high and will likely remain high. Millennials and Gen Z are “coming of age” and placing more emphasis on owning homes as they form new households.

Meanwhile, the latest data from Zillow shows that the number of homes for sale in the U.S. dipped below one million this past December. For comparison: before the crazy bidding wars of 2021, there were an additional 220,000+ homes for sale a year earlier. Demand has yet to decrease, and inventory has actually dropped.

We’re still seeing buyers waive inspections, go all-in with their offers from the start rather than escalate, and go over the appraised value – and it’s been an entire year of this.

So when can we expect home prices to drop, or at least stop climbing so rapidly? My guess is that prices are unlikely to experience a notable dip within the next 5 years. However, we’ll eventually see the market reach more of an equilibrium between buyers and sellers. We can expect such a shift once certain things take place:

New home construction continues to increase, helping meet demand (and/or)

New technologies like home printing decrease the cost of production (and/or)

Cities alter outdated zoning laws to better accommodate growing populations (and/or)

Baby boomers – who own much of the US housing stock – begin aging out of their homes

All of these things have the potential to greatly impact the housing market, but none of them are happening overnight. We also don’t know what the average mortgage rate will look like in five years, but that could have a major impact on demand as well.

If you plan on buying a home, you shouldn’t delay meeting with an agent to discuss your options. If you’re thinking of waiting until home prices drop: don’t. You might end up renting forever.