I literally ran into Mick the other day while jogging the path around the park across from my neighborhood. I’ve been passing Mick on the path almost every morning for years, and we always nod politely whenever we see each other. This time, however, he ran smack dab into me after turning a corner. Apologizing, he admitted he was lost in thought about his decision to leave his corporate job to start a business in real estate and was wondering what to include in his business plan for flipping houses. After I told him I’d been investing in single-family homes for years and that my preferred strategy was buying and renovating them to resell, we laughed at the coincidence. Then, I offered to help him with the nuts and bolts of building his plan—but, only if he agreed not to run into me the next time he had a good idea brewing.
What to Include in a Flipping Houses Business Plan
Not having been an entrepreneur before, I was impressed that Mick had the forethought to consider creating a real estate investment business plan to help him clearly define his investing goals and to keep the pursuit of those goals on track. A lot of new investors just jump right into buying and rehabbing houses without giving much thought to why they’re doing it or how they can best succeed. I always find this unfortunate since, though you may make a little money on your first few flips, you may be putting the financial future of your investing business at risk by going at it willy-nilly. Flying by the seat of your pants—or under the influence of other investors doing the same—does not position you to make good investment property decisions with confidence. Having a strategy that reflects, supports, and builds your business does.
Knowing what to include in your flipping houses business plan as a new investor, however, isn’t necessarily obvious—particularly if you haven’t created a formal plan for building a business of any kind before. But, like I told Mick, there are at least five key elements that you’ll want to add to make sure you get your business going in a profitable direction and to increase the probability that it will stay there. Here they are:
- Executive Summary. The first section of your business plan should provide a general overview of the other, more detailed sections throughout, including a mission statement describing your objectives and the values behind them. This section is a representation of your knowledge of the real estate investing niche you’ve chosen, the education and skill set you’ll be bringing to the table, your long-term business goals, and how you intend to reach them. There isn’t necessarily a prescribed length you should follow. If someone only had the time to read the first page of your business plan, however, they should have no doubt that buying, renovating, and selling houses is your business and that you have a plan to do it well.
- Market Analysis. As a beginner in flipping houses, it’s critical that you research the area in which you’ll be investing and analyze that market’s risks and opportunities for realizing the potentially best returns—and record it in your plan. It’s important, for example, to know what homes are being bought and sold for, but also the average time it takes for houses to sell. This can help to guide expectations and plan your timelines accordingly. And, when you’re comparing properties of similar size, style, and condition, it’s good to note what rehab trends help investment properties sell quickly so that you don’t perform renovations that don’t attract a particular neighborhood’s typical buyer. The point is to become your market’s investing expert and to be able to show how your business stands to gain from this expertise.
- Funding Strategy. In this section of your plan, it’s critical to describe your company’s financial projections and the means with which you intend to reach them. This will include how you expect to purchase your first several properties since, as a new investor, it could prove difficult to get a hard money loan and most banks or credit unions won’t lend on a fixer-upper. You may, for example, have to partner with other, more experienced real estate investors on a few deals or draw on other assets that are available to you until you become more established. Fortunately, as an independently owned and operated HomeVestors® franchisee, getting the money I need to buy, renovate, and sell properties has never been a problem because HomeVestors provides financing for qualifying purchases and repairs.
- Organizational Strategy. When starting a real estate investing company, you may opt to handle everything yourself in its initial stages, but that will—and should—change as your business grows. So, be sure to describe how you plan to operate your company now and later. This could include everything from hiring part-time administrative help once you reach a certain number of renovations per year to integrating a full-time project development team to facilitate the expansion of your business and its reach in the community. And, you’ll need to decide if you’re going to structure your business as a sole proprietor, partnership, LLC, or a corporation—each of which has different tax implications. How you organize your business, and the team you bring on to help, can affect your bottom line for better or for worse. If you’re not certain which direction you should take, or when, consider consulting an attorney or accountant for guidance.
- Backup Plan. Your exit strategy—to sell the homes you flip—may need to be reworked from time-to-time if things don’t go as planned. Events often happen that are out of our control, like the market taking an unexpected dip due to rising interest rates, that can scare buyers and delay the sale of your investment property. If and when this happens, you should already have an idea of what your backup options are, how you can implement them, and what the long-term effects might be on your business. You may need to occasionally hold properties, turn them into rentals, refinance, or sell at a loss, for example. And, the impact of each on your company will vary. That’s why it’s critical to plan for contingencies on every deal. But, it’s also important to plan for the options that align with your values and support your overall financial fitness, too.
Obviously, the details of your business plan will vary somewhat from mine or Mick’s, but its purpose—to help you make a good business out of flipping houses—is essentially the same. And, a large part of ensuring that its purpose comes to fruition is all that hard work and focus that you’ll be contributing. Luckily, if you’re already working with a ready-made and proven real estate investment business model, your work won’t have to be any harder than it needs to be. So, if I can add one more element to improving your chances of building a successful business, it would be to plan on working with an established real estate investing brand.
A Ready-Made and Proven Model for Building Your Investing Business
I like rolling around new ideas while I’m out on my morning runs, too, just like Mick. And, it wasn’t that long ago that I had what I consider one of my best: becoming an independently owned and operated HomeVestors® franchisee. I’d been doing some research on constructing a business plan for investing in real estate when I came across HomeVestors® website and requested more information about franchising opportunities.
I spent several of my runs thinking the information over and it just made more sense to go with an established real estate investing business model rather than start from scratch. I was especially impressed with how many houses other franchisees had successfully bought since 1996, which is now at over 100,000 across 48 states, and I wanted to be a part of that success. Now that I am, I do what I can to influence other new investors, like Mick, to consider doing the same. After all, flipping houses is already a lot of hard work. Planning for a successful business simply shouldn’t be.
Pick up the pace for planning your professional real estate investing business. Call or email HomeVestors to discuss your real estate investing future today!
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