I'm a big fan of planning. In fact, to me, sometimes planning a business is even more fun than the actual running of the business. Ha!
So, today I'd like to share with you the actual process to create a real estate business plan that not only is awesome, but can also serve as a guide for you and your team to run an amazing business. Ready? Let's go…
Your Real Estate Business Plan
In my experience, a divisional framework is ideal for organization in this industry.
Uh… what the heck does that mean?
Well, it means that it'll be best to look at your business the exact same way a Fortune 500 company looks at theirs.
By divisions. Or profit centers if you prefer that.
So, as you sit down with your pen and paper to formulate (or re-formulate) how this is all working, or what changes you need to consider to “make it work,” here are the divisions I suggest you implement in your investment company.
(Just to clarify, by “making it work,” I mean “make your investment company into the dream company you want it to be.”)
This is the area from which you manage your purchased properties, keeping them for a predetermined amount of time. Often these are rental properties you hold, realizing cash flow and some equity until it’s time to unload them.
This is the division where you fix and flip properties for a profit to retail buyers.
This is the division that most landlords AND rehabbers overlook. But it is insanely profitable as a bolt on division to monetize overflow leads by flipping them to investor buyers AND as a standalone division for newbies.
Investor relations division.
This is your division dedicated to finding, creating, and nurturing your relationships with those investment partners who fund your projects.
Being diverse gives you more opportunity to turn almost any deal into profit.
Building Your Team
Once you establish your buy-and-hold division, your fix-and-flip division, your wholesaling division, and your investor relations division, assemble four support teams to help you.
This is your business, interview and hire folks who work best in your business- not just your best friends.
- Acquisitions team. This person is the one out there getting the deals, acquiring the properties, and writing the offers. It could be a Realtor, an assistant, or a commission-based buyer who buys according to the criteria YOU developed.
- Sales team. This team will help you dispose of the properties you’ve acquired. You can have a listing Realtor to help you manage dispositions. You can also have someone in house who flips those deals to wholesalers.
- Construction team. A must for rehabbing. There is nothing so painful and time-consuming to a rehabber than finding and assembling a whole new construction team every time they do a rehab project. As trusted partners, you will grow together and get better together, and you will both know and understand each other’s expectations for every project.
- Property management team. You should not self-manage your properties, even if you only have one. You need a property manager. My motto is, “You hire for where you want to be, not where you are.”
Your Investor Relations Division: A Team of One
The objective of your investor relations division is to identify, introduce, and invest with your private money partners, and manage that process.
This is all you.
You cannot outsource this division.
One of the biggest questions I get is, “I need about a million dollars; can I hire somebody to raise the money for me?”
Um, good luck with that! That is your baby. It’s your division.
There is, however, a process you can use to implement the strategy of “identify, introduce, and invest,” that will help keep your Investor Relations Division flowing:
- Identify the prospects
- Qualify the prospects
- Introduce your opportunity
- Disclosure how you’re going to be using their money and what the risks are for them.
- Close the deal
- File the paperwork
- Manage the property and your investment partners
When the deal pays off, then you’re off to the next one. That is the flow for every deal.
Before you put the car in drive, you first have to figure out the goals of your real estate company and your investment criteria. Without those two fundamental pieces you’ll never be able to raise a penny because you’ll never be able to communicate to anybody what the heck it is you’re doing.
The following is an example of a ten-year plan:
My goals and objectives are to acquire, rehab, and rent 40 distressed properties. I’m going to acquire one property every three months; that’s four per year for ten years. I will finance with private money and repair, rent, and refinance properties that are below eighty percent loan-to-value.
I will refinance at seven percent interest on a fifteen-year fixed term, reinvest as much cash flow as possible in the form of extra payments to accelerate the loan payoffs, and after only ten years I will have captured two-point-three million in equity while generating thirteen thousand in positive cash flow per month.
The One-Page Business Plan
Although I love a good long novel, I’m not a big fan of giant business plans.
Some things are best kept smart and simple.
Here’s what a one-page business plan might look like for a wholesaling business:
Within the next three years, grow My Wholesaling Business, LLC, into a $500,000 annual revenue real estate company that specializes in providing discount properties to residential and commercial real estate investors.
We source discounted, distressed properties for busy real estate investors so they can choose from a wider selection of deeply discounted deals.
- First-year revenue $60,000
- Achieve profit before tax of $40,000 for the year ending 12/31/16
- Obtain relationships with three portfolio lenders with REO inventory
- End the year with a buyers list of 1,000 real estate investors
- Build our network and professional relationships within the investor community
- Cultivate relationships with REO agents
- Obtain access to nationwide MLS and database of cash buyers
- Attend local REIA meeting each month beginning 1/1/16
- Buy a FreedomSoft license by 2/1/16
- Launch buyer and seller websites by 2/15/16
- Launch Facebook advertising campaign to build buyers list by 3/1/16
- Obtain a nationwide list of REO agents and asset managers by 2/15/16
- Contact a minimum of two potential investors per week beginning 1/1/16
- Contact a minimum of two REO agents/asset managers per week beginning 2/15/16
The Behind the Scenes of Your Plan
Your Value Statement – The Elevator Speech
Your value statement is an awesome answer to the question “What do you do?”
It’s also known as your elevator speech because if you ride an elevator with someone and they ask you what you do, they should have a very clear idea by the time you reach their floor.
The framework for it is “I… so… that…”
I put together lucrative real estate investments so that my investment partners will make safe, consistent profits.
The goal is to get a response of “Cool!” instead of “Oh, that’s nice” while they walk away.
So, try to make it just a little sexy.
Partner Vision; Periscope up!
Once you have created and can articulate your value statement, you can then practice what I call “partner vision.”
Partner vision is a new way of assessing people you meet in your everyday life as potential investment partners.
It’s like radar: ping, ping, ping, potential partner, ping, ping, ping, potential partner.
Be ever-vigilant in your search for potential investment partners because that’s how you create and control the funding for your deals.
Investment Criteria; That’s How We Do It.
These are the specific types of properties you’re looking for.
Your criteria are what to articulate clearly to your acquisitions team, your realtor if you’re working with a buyer’s agent, or a bank if you’re working with one to get packages of foreclosed properties.
People with properties want to know what you want to acquire.
You never want to be the guy who says, “Oh, I don’t know. What have you got?”
Eew! Don’t be that person.
Be crystal clear on your investment criteria and your ability to communicate those criteria to anybody, at any time.
That is crucial if you want to stay focused and successfully raise private money before you have a deal.
The Chicken or the Egg?
“Susan, do I go out and get a deal under contract and then look for private money, or do I first look for private money and then go and find a deal?”
I get this question all the time.
My preference is to get the money first and then go looking for the deal.
It keeps you out of desperation mode.
Once you get a deal under contract, the clock is ticking.
You don’t want every person you approach to see a wild look in your eye that says, “Oh, no! I need some money; I need some money.”
People see that look and they’re repelled by it.
On the other hand, if you raise the cash before you need it, you’re a cash buyer.
- Cash buyers get the deeper discounts
- Cash buyers get awarded the deals before anybody else because they can close quicker.
- Cash buyers are in control because they have the cash.
If you go to an investor and they ask, “What are you going to be investing in?” and you answer, “Oh… well… we’re looking at some duplexes and also we heard that Indiana might be good and…”
That’s not going to work.
If you say, “We’re looking for single-family homes in these particular five zip codes for which the purchase price is below sixty percent of the market value and the repaired value is no more than seventy-five percent of market value. We’re going to hold for five years, and we have an anticipated profit of $14,000 per house.”
Now you’re talking!
Your Investment Criteria; Take It or Leave It
I am asked all the time to partner on deals, but my criteria are very specific.
For me to consider partnering or consulting on a deal it must have:
- Multifamily only
- A $5-million-plus purchase price.
- No capital improvements or extensive rehab.
- Investment partners must already be lined up so I don’t have to raise private money for the deal.
If it meets those criteria, I have them input the deal into ianalyzerei.com and send me the complete twenty-six-page report that it creates along with personal financial statements for all the partners.
If I like what I see, I’ll call them.
That’s pretty specific, isn’t it?
I ask them to input the deal into something that gives me a full report so that the initial work is in their court.
I used to spend hours analyzing deals that random people emailed to me. I have no desire to spend my time that way anymore. Way too busy to even look at deals that don't meet my investment criteria.
That is the attitude that your potential private money partners are going to have, too. And that’s why it’s essential that you be able to articulate clearly exactly what it is that you are doing.
The Plan is Set!
With the above in place, you are ready for a business that will ensure you unlimited potential. You are also ready for some serious deals.
If you need some inspiration on where to get “some deals,” I have a few.
Over 65 ideas actually.
Getting the Deals will help you create a system that has five deals in play AT ALL TIMES.
That is going to satisfy so many of your real estate business plan objectives.
Have fun. Create value