Why you need a real estate business plan now more than ever
Gone are the days when buying the house next door made you the neighborhood real estate mogul. Instead, generalized property investment is the primary vehicle for upward mobility, and it is important that buyers take their purchases seriously. A real estate business plan is an often overlooked tool that many homebuyers bypass completely. But experts say an overly casual approach to home buying is shortsighted.
According to Roof, individual real estate investors account for 74.4% of rental properties in the United States, which means that at some point, the house you live in can generate income for your family. To buy a house by keeping the profit possibilities in mind, you can reach your financial goals faster and consider ways in which the value of your home can be factored into growing your equity.
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Instinct is not enough to make a profit.
Business Coach Rhianna campbell has over 20 years of experience in a variety of real estate roles. She says she’s seen homeowners make costly mistakes that are hard to fix.
For example, real estate agents who sell a family their dream home may hook someone up by asking how they feel about visiting a home or if they can imagine growing old in that neighborhood. However, these gut feelings are only a small part of the decision-making criteria that an owner should use.
“When it comes to money, planning has always played a key role,” says Campbell. “Whether you are budgeting for your daily bills or saving for retirement, you need to know what your goal is. Otherwise, you can make very costly mistakes. Real estate is no different. Not knowing how much a house can cost you to buy and maintain can put you in dire financial straits. “
If you plan to occupy the home for a few years, maintenance costs, interest rates, and utilities are basic numbers you should plan for. Likewise, Campbell says most people just think about how much rent they might charge if they decide to rent a room or turn that same house into a rental property later. But when developing a real business plan, you should think more seriously about financial metrics, such as net operating income (NOI), cap rate (cap rate), cash flow and cash flow yield.
“These measurements are important for you to understand,” says Campbell. “If you ignore important things like non-payment of rent or vacancy, you can easily turn a seemingly good investment into a very bad choice.”
She emphasizes that instinct is not enough. Instead, it’s best to create a comprehensive business plan that projects all the financial ups and downs that might arise over the life of the property. “With a solid plan, you can use real estate to help you build a wealth for you and your family,” says Campbell.
Planning helps identify the best investment strategy.
Bill Samuel from Blue Ladder Development in Illinois says most homeowners haven’t thought through every possible real estate strategy. There are several strategies you can choose from, including one short term rental during high seasons, “Home hacking”, long term rental, repair and return, the sale of broadcasting rights or the rental for events or television sets. When the average person buys their home, they don’t think about all of these possibilities, but in the process of writing a business plan, you should.
“My advice to developing a business plan is to start with the heart, which is always how you will get clients,” says Samuel. “Of course, if you market your house as a short-term vacation rental, you will have very different customers than if you plan to rent it out for photo ops.” He advises spending time putting together a comprehensive strategy, including a diverse marketing plan. “Make sure you cover all the details like customer acquisition cost, specific marketing materials used, marketing budget, etc., as this will help you develop a more specific plan for the next steps,” he says. he.
Even if you are just planning to find a long term tenant to cover the mortgage and utilities, you need to market to find the right tenant. This can include paid advertisements as well as background and credit checks, which cost you money and time, which you can then factor into rental costs. Samuel says that once you have a general plan for how the business will operate, you can realistically predict how long it will take to break even.
Shift your mindset from owner to investor.
When you see yourself as an owner, there are a lot of things to do: rake the leaves, clean the gutters, paint the bridge. However, when you’re an investor, the list grows to include things like rental inspections and license renewals, as well as finding a tax accountant or planning major repairs. A mental shift naturally occurs in the process of writing a real estate plan that includes all of these new responsibilities.
Robert milton, a New Jersey-based real estate agent for Coldwell Banker, finds it important to have a real estate business plan as a young or new investor. “It can be used as a tool to help you focus on small steps, set daily tasks, and get used to running your real estate business,” he says. Once you have made the mental shift towards an investor mindset, your activities will guide you towards greater opportunities to adapt to your market.
Whatever strategy you choose to increase your home’s profit, you will want to be ahead of the competition. To do this, Milton says it’s best to have a clear financial goal built into the business plan, so you can figure out when to stick with a strategy that seems to be working well and when to pivot into a new niche. that no one else thought.