If you are considering getting involved in real estate you need to have a plan. Your plan doesn’t need to be elaborate or even overly formal but you should have some sense of where you want your business to go. Where most investors get in trouble is thinking they know the business simply by watching a few shows or reading as few books. As they quickly discover the business has a way of taking them to places they would have never expected. Without a solid business plan it is easy to bounce around from lead to lead without any real direction. Prior to looking at your first property or researching your first deal you need to start with a plan. Here are five aspects of writing a good business plan.
- Know What You Are Getting Into. You should never start investing without some idea of what you are getting into. Without the aid of experience you should start your plan by doing your homework. Most investors in today’s market are infatuated with rehabs and quick flip deals. While these can certainly make sense in the right market they may not work for you and your goals. You don’t need to be an expert in every aspect of the business but you should have some idea of what you want to do and how you plan on doing it. There is a big difference in what is needed for a rehab as opposed to a buy and hold rental. When you do get involved in your first deal it shouldn’t catch you off guard. You will never know everything prior to getting started but you should always do as much research as needed to make you comfortable.
- What, Why, When, Where. Your business plan should serve as a roadmap for where you want to go and how you plan on getting there. Start by accessing what kind of investing you want to pursue. Do you want to get in to the world of rehabbing or are you looking for long term rental properties? How you answer will partially determine which markets will be your focus. Some markets work better for rehabs while others make more sense for long term acquisitions. You also need to determine the timeframe for your first purchase. Are you looking to buy tomorrow if something presents itself or do you want to wait a few months? Under each answer you should play out the best and worst case scenarios. Most new investors think everything will fall in line just the way they plan. When they are presented with the slightest issue it throws everything off. The more you consider all of the negatives that can happen the better you are at dealing with them.
- Time Commitment. One of the great aspects of real estate investing is that you can do it on your own terms. If you want to buy one property a year there is nothing keeping you from doing so. Part of your business plan should be recognizing how much time you can commit to the real estate business. There is a lot that goes into being part of a successful transaction. Even though there are websites and apps that make the process easier there are no shortcuts to success. You need to do your due diligence on every deal if you want to truly know what you are getting into. It is important to ask yourself how much time you have available during the work day to focus on real estate. This can be a challenge if you want to hang onto your full time employment. If finding time during the day is tricky you need to be able to work at nights or on weekends. There are ways to invest even with just a few hours a week but you need to map out exactly how you plan on doing it.
- Strengths & Weaknesses. What parts of the business do you feel you have a pretty good grasp on right now? While you really never know until you get started often times you know which areas you are comfortable with and those you need to work on. You should play to your strengths and look for ways to compensate for your weaknesses. Whatever field you come from should be your focus. If you come from finance, real estate or the mortgage business you should be able to understand the numbers and jargon on a new deal. If you have a tech background you can use that strength to help generate leads and promote your business. Getting into any new business requires some self-assessment. As you write you plan you should take the time to consider your strengths and weaknesses.
- Lead Generation. Regardless of your background the strength of your initial lead generation often determines the strength of your business. A major part of your business plan has to be how you plan on getting leads. Fortunately it is easier than ever to promote a business and reach people. The internet, particularly social media, make it easy to reach hundreds of people every day. However reaching people is not enough. You also need to think about how you will generate leads. You don’t need to spend thousands of dollars on lead generation but you should have some strategy in mind. Finding the right strategy will take some trial and error but you need to have a plan prior to getting started.
Your business plan can be as short as a paragraph or as long as you want. Having a plan of attack is the best way to approach a new endeavor.
