Oh, how some investors love to plan. When I was first starting my real estate business, I kept a long queue of prospects that I planned to get around to, just as soon as I worked my way through all of the deals already on my plate. Naturally, most of the prospects got gobbled up by other investors long before I had a chance to follow through. But, that wasn’t frustrating for me—the fact that other flippers bought the properties in my queue confirmed that my business plan was sound.
There’s much more to business plans than a list of prospects, though. And most business plans don’t even need to discuss prospects in detail at all. But when it comes to maximizing your chances of success as a new investor, I can’t overstate enough the importance of having a solid business plan.
In my view, the act of writing down your plan is one of the most profound things I did in my early career because it forced me to clarify my thoughts and appreciate the holes in my understanding of what it’d take to succeed. If you’re a fresh real estate investor who hasn’t made their first plan yet, I’m here to tell you that it’s time to make one, and also that it’s going to be a lot easier than it might sound.
- The point of a business plan is to describe how your company will make money
- You need a house flipping business plan, even if you think your business will be simple
- It’s easier to get started with a house flipping business than it might seem
Why You Need a House Flipping Business Plan
Some new investors love the idea of planning, but others may balk at the prospect of writing down pages and pages of content for what they consider to be a straightforward business like house flipping.
While I’ve always been very much in the first camp, I can understand the hesitation surrounding spending a lot of time on a document that won’t ever yield direct revenue.
In short, you need a house flipping business plan because:
- It’ll organize your thinking and force you to question your assumptions about how things will work
- It’ll demonstrate to potential partners or investors that you’re a serious and competent businessperson
- It’ll keep your operations focused rather than sprawling
If you’re still a business plan skeptic, it’s the second bullet point which should be the most relevant to consider.
Without a document describing what you’re doing, why you’re doing it, and how your proposed way of doing it will be profitable, it’ll be tough to draw in outside investors and collaborators with whom you don’t already have a professional relationship. And, even for people who you are already working with, it’s beneficial to have one sheet of music that everyone agrees to read from when moving forward.
What Goes Into a Business Plan
If you’ve never compiled a house flipping business plan before, the process can seem a bit daunting. But don’t worry, if you’ve been seriously thinking about starting a fresh house flipping business, you probably already have exposure to most of the important things that a plan should cover.
Your house flipping business plan is going to cover a bunch of topics, including:
- The legal structure of your company
- What your business will do to make money
- The market where your business will operate
- A rationale for why that market is favorable
- The strategy and tactics that your business will use
- How, when, and why your business will secure financing
- The human resources you’ll be using
- A preliminary budget
- Profitability and revenue estimates
- A short-term action plan
If you were making a business plan for a different business, there might also be a few additional topics to cover. For now, let’s go into a bit more detail on the core topics so that you’ll get a feeling for what you’ll write when you make your plan.
Market Research and Targeting
Market analysis is the bedrock upon which all business plans are built. In this section, you’ll be describing the properties and trends of the housing market where you plan to compete and developing an argument for why that market is especially lucrative.
In particular, you’ll want to mention things like the average home price, the average home age, average conditions, and the intensity of competition between other businesses like yours, not to mention the level of turnover and foreclosure activity. You’ll also want to have a strong thesis about what’s driving the market to expand or contract, how much the market will grow or shrink, and over what time period it’ll do so.
The sky’s the limit with the analysis section, and the more information you can bring in to make the market sound like an appealing place to do business, the better. It’s also appropriate to discuss competitive forces like access to renovation materials, contractors, leads, buyers, and financing.
Aim to be comprehensive, but not exhaustive. And don’t forget that pictures are worth 1000 words; offering a few visual examples of homes in the target market can be far more enlightening than long descriptions.
The Business Model
Your business model will be pretty straightforward for a house flipping business plan.
Your company will find leads for properties, vet the leads, purchase the most promising prospects, perform renovations on the properties, and then resell the properties at a higher price than before, thereby (hopefully) making a profit. Then, your company will repeat the process, hopefully at a slightly larger scale with each cycle iteration. To communicate the model to investors, I highly suggest making or finding a simple diagram.
When compiling this portion, don’t worry too much about providing justifications for your reasoning. That’s in the next section. But, if you’re planning on buying a franchise business, this is the place to mention it, as it’ll imply that you need much less effort to accomplish many of the core tasks outlined in the model.
Finally, in this section, you should also include a brief note about the legal structure of your business.
Growth Strategy and Tactics
Your house flipping business plan needs to address how you’ll grow your company over time.
That could be as simple as saying something along the lines of “we plan to roll most of our profits from each successful flip into our working capital so that we can increase our bandwidth for deals”. Or, it could be more involved, perhaps by diversifying into a different type of property to flip or entering a new region after a certain amount of time.
If you’re having trouble thinking of tactics to mention, start by describing why it’s worth targeting the market you specified, and how it will be feasible for your company to flourish by doing so.
To be clear, this is the section where you need to defend your choices and provide rationales for why your way will work.
You need to have access to financial leverage for your business to work. That might be in the form of hard money loans or other financial instruments.
No matter which financing options you plan to use, it’s essential to provide a brief summary of the rates you expect to borrow at and the approximate size of the deals you’ll be able to make with the resources you have. If you have a list of lenders, the financing section is the place for it.
Plus, it’s helpful to include a note about how quickly your expected deal flow will be able to pay off any interest you incur.
Whoever is reading your business plan may not know you very well, so you need to provide them with some context.
Information about your background and real estate investing experience is key, and it’s also a good idea to have a few professional references at the ready. Furthermore, if you have any advisors, business partners, collaborators, or critical employees, they should be listed and briefly described.
You probably won’t have any employees when you’re just starting, so it might not be necessary to include an actual organization chart. But, as your business grows, it could be helpful to maintain an org chart, so it’s okay if you include one that’s somewhat aspirational.
Be sure to specify whether you plan on using outside contractors for renovation work and if you will need specific licensing or paperwork. If you do, it’s helpful to include a reference to any groups you’re planning on working with again in the future.
The Plan for Year One
The capstone of a business plan is the proposed roadmap for the first year of operation.
The more detailed the roadmap, the better. Include a granular list of actions that you’ll be taking and when, how much they’ll cost, and how they’ll lead your business growth once everything is said and done.
Writing up the plan for year one is where you’re going to realize that many of the elements of your business model are far more complex than they might seem at first glance.
Be sure to keep track of any ideas you get about where to streamline your operations by hiring outside contractors, paying for services, becoming a franchise, or similar effort-saving measures.
Making Your Plan
The higher the standard you maintain when compiling your plan, the more valuable it’ll be, and the more compelling it’ll be for any collaborators that you share the plan with.
In more concrete terms, that means you’ll need to:
- Include a table of contents and page numbers
- Write succinctly
- Fill out the sections of the plan comprehensively but without including irrelevant information
- Include a link or citation to back up each factual claim you make
- Include self-made charts, tables, figures, and other exhibits as needed
- Proofread your plan
You can also use this template to get started:
|Section||Approximate length||What to include||Your plan|
|Introduction||One-third of a page or less||Your name, contact information, the date, and a brief description of what’s in the document|
|Executive summary||Between one-fourth of a page and half of a page||A very concise description of what your business will do, what resources it’ll use to do it, where it’ll be operating, and why its main strategy is favorable|
|Table of contents||As long as necessary||A one-line entry for every page in the plan|
|Market analysis||Between two and five pages||A detailed analysis of the market you’ve chosen to compete in, including (at a minimum) discussions about the current microeconomic environment, quality of housing stock, access to leads, access to contractors, and the presence of competitors|
|Business model and general strategy||One page||A detailed account of how your business will make money from start to finish, including how you’ll find leads, value properties, identify profitable prospects, close deals, make renovations, sell the homes, and a discussion of how the business will grow after each sale|
|Financing||One page||A comparison of several potential funding options and a specification of which methods of securing financing are going to be the most used and why; if you already have specific lenders ready, cite them|
|Management and the org chart (if applicable)||One page||An autobiographical account of your pedigree, merits, and accomplishments as an investor or entrepreneur, a chart depicting the position, and a brief bio of anyone else that will be relevant to the business|
|Budget||One page||A line by line account of overhead expenses, average unit economics, financing expenses, other expenses, and the cash or equivalents that are available for use|
|Financial projections||One page||A set of estimates of the business’ expected margins given the costs described in the budget, and an estimate for how much money the business could make in its first year given the financing available and the conditions of the market|
|First year roadmap||One or two pages||A step-by-step action plan detailing how each of the resources (including your time) identified in the business plan will be used to generate the returns specified in the financial projections during the first year of the business’ operation, including rough timelines|
|Appendices (if necessary)||As long as necessary||A collection of any supplemental data which you harvested or prepared and referred to for the plan but which did not warrant including in the main body of the text|
|Sources||As long as necessary||A list of the sources of information you used to inform any factual aspect of the plan|
In terms of its total length, your business plan will probably be in the ballpark of around 10 pages before accounting for your table of contents, sources, or appendices. Remember, it’s highly recommended to use charts, tables, bulleted lists, or exhibits to convey information and hit a section’s target length.
Still, most house flipping business plans shouldn’t be any longer than 25 pages. Keep your discussions focused, and don’t include information which isn’t directly relevant to whoever will be reading the plan.
Planning Tips and Tricks
It’s important to remember that your business plan is just a plan.
It isn’t written in stone, and you’re free to change it at any time, for any reason. The metrics that matter are whether the plan is useful to you, and whether it’s cogent and appealing to potential partners.
So, if you think your plan would go over with someone a bit better if you tailored it to their tastes, it’s a good idea to do so. Likewise, I suggest that you rip sections like the budget and the year one roadmap from your plan to use as living documents for your day to day work.
One other tip that I highly recommend to new investors is to compile the executive summary last. It’s going to be the first thing that people read, and it’s critical to keep it short and sweet.
Keep in mind that you don’t need to give away any trade secrets or other sensitive information in the plan. Suppose you’re planning on using a proprietary property valuation system or lead generation system to power your business. In that case, you need to mention that you’ll be using them, but not the nuts and bolts about how they work.
In the same vein, if you’ve found a lucrative and undiscovered market to target with a given strategy, you only need to provide enough information to orient a reader to the approximate region or the approximate nature of the strategy.
But, if you’re sharing the plan with someone who can be trusted not to poach your market, of course, it’s better to be more explicit and more detailed.
Executing Your Plan Doesn’t Need to Be Hard
Making a house flipping business plan is something that the best real estate investors have done, and soon enough, you’ll be doing it too.
Still, your new company will have a lot of moving parts that will sap your time and attention. The most successful flippers know that there’s money to be made by offloading, streamlining, and collaborating wherever possible.
On that note, one of the easiest ways to launch your new business is to become an independently owned and operated HomeVestors® franchisee. HomeVestors® franchisees get tremendous support in every major aspect of their company, from undergoing your initial house flipping training to generating quality leads with a nationally recognized marketing brand to valuing properties with proprietary software and providing financing for qualifying purchases and repairs.
If you’re considering starting a real estate investing business, and want to know more about house flipping business plans, request more information about becoming a franchisee today.
Each franchise office is independently owned and operated.