7 Critical Parts of Every Real Estate Investment Business Plan.
Buying your first investment property in Edmonton is an incredible thrill, but whether you want to fix and flip or buy and hold, you need to have a solid real estate investment business plan.
In this article, we’ll discuss the common requirements of any business plan, such as budget and financial projections, as well as required capital. We will also review less common, yet equally important, items like investment strategies, market analysis, property acquisition, and time commitment.
Why You Need a Real Estate Investment Business Plan
A real estate investment business plan serves as a roadmap for your real estate investment journey. It helps you to identify your goals, target audience, investment strategies, and financial projections. Without a well-crafted business plan, it is easy to become sidetracked, lose sight of your objectives, and miss out on investment opportunities. Moreover, having a solid business plan can help you secure funding from investors or lenders, as it shows them that you have a clear understanding of your business and that you are committed to achieving your goals.
A business plan provides a clear picture of the financial requirements for your real estate investment venture, including how much capital is needed to purchase properties, renovate them, and pay for other expenses. It will also outline how you plan to generate income from your investments and how you will measure success. By having a well-crafted business plan, you can stay focused on your objectives and make informed decisions that will ultimately lead to success.
What to Include in Your Real Estate Investment Business Plan
Now that you understand the importance of having a real estate investment business plan, let's discuss what it should include in more detail:
Executive Summary - This is a brief overview of your business plan that highlights your investment strategy, goals, and financial projections. It should be clear and concise, and provide an overview of what the reader can expect from the rest of the plan.
Business Description - This section should provide a more detailed explanation of your investment strategy, including your target market and types of properties you plan to invest in. You should explain your investment philosophy and the criteria you use to evaluate properties. You may also want to discuss your experience in the real estate industry and any unique advantages that you bring to the table.
Market Analysis - This section should cover a comprehensive analysis of the real estate market in which you plan to invest, including the supply and demand for properties and Edmonton neighbourhoods, rental rates, and local economic trends. Edmonton has unique investment opportunites with the University of Alberta, infills in established communities and an ever-expanding LRT system. A Realtor can provide detailed market analysis for Edmonton neighbourhoods that match your investment goals. You should also include an analysis of your competition, and how you plan to differentiate yourself from them.
Management Team - This section should introduce the members of your management team and outline their roles and responsibilities. You should discuss the qualifications and experience of each team member, and explain how they will contribute to the success of the business.
Financial Projections - This section should include your revenue and expense projections, as well as your cash flow and profitability forecasts. You should also discuss your funding requirements and how you plan to finance your investments. It's important to be realistic in your projections and provide detailed assumptions that support your numbers.
Marketing Strategy - This section should explain how you plan to market your properties, attract tenants, and generate income from your investments. You should discuss your branding, messaging, and advertising channels, and explain how you plan to build relationships with your tenants and stakeholders.
Exit Strategy - This section should outline your plan for exiting your investments, including when and how you plan to sell your properties or dispose of them. You should discuss the different options available to you, and explain the criteria you will use to decide which option to pursue.
Any good real estate investment business plan includes an exit strategy. Sure, you may say that you are going to hold your properties forever, but the truth is, you still need to have the ability to exit if your plans change.
An exit strategy is not a requirement to sell; it is the point in your investment plan that allows you the option to exit if you decide to. Experienced investors know that you can only really control when you buy; due to unforeseen circumstances, you can’t always control when you must sell.
To identify your exit strategy, review your financial projections and identify points where your balance sheet reflects low liabilities alongside high cash and equity. These are good exit points. For fix and flips and wholesale, the exit strategy may be months or even weeks for each property; for speculation and cash-flow it may take five to 10 years.
The Bottom Line
Real estate investing can be fun and very profitable. To ensure your success with real estate investing, start with a well-thought-out plan. As they say: “Failing to plan is planning to fail!”.