How to Write a Business Plan for a Fix-n-Flip Real Estate Company

Flipping homes makes for good reality TV, but it can also make for good business. What they don’t usually show on screen on shows like Flip or Flop is that writing a business plan is a must.

If you’re thinking about starting a business that buys up homes, fixes them up and then re-sells them at a profit, the first step is to write a business plan. Writing a business plan for a real estate company will help you pinpoint your goals and create a living roadmap—a tool for building your business. Check out Bplans’ real estate company sample business plans for inspiration. They’re free to download.

There are a few different types of business plans depending on your goals. If you’re seeking investment or a bank loan, a traditional business plan is what you need. If you want to put together a strategic plan to map out your business’s growth potential, you might consider a Lean Business Plan.

This guide will walk you through the steps of how to write a full business plan for your real estate company. But know that a Lean Plan shares all of the same components of a traditional business plan—it’s just shorter.

Whichever type of plan you choose, remember that a business plan is a living document. You should revisit it on a regular basis as time passes. Set a specific time each month to review it, comparing forecasts to actuals and revising as necessary. Assumptions change based on experience, and your business plan should change along with these assumptions. It can be a powerful tool for setting and achieving goals as a real estate agent.

Executive summary

The executive summary provides an overview of your real estate company and your plans. Limit it to 1 to 2 pages. It serves as a mini version of your entire plan.

So be sure to write it last, after you have already thought through the other sections of your business plan. Investors will read your executive summary and decide whether or not it’s worth their time to read the rest of the plan. So make sure to put effort into it. Just keep it brief.

First, you want to establish the broad overview of your services: Pure real estate? Real estate and mortgage? How about title work? You’ll also want to summarize some structural and financial information. For instance, is it a limited partnership or limited liability company?

Consider this example: Pleasant Acres Real Estate, LLC (PARE) is a startup company located in El Paso, Texas. PARE specializes in fixing and flipping residential properties by buying homes in need of repair, renovating them, and then putting them back on the market.

Your executive summary will include the following sections:

• Who you are: Your business name, location, and contact information.  
• What you offer and the problem your business solves: What does your company offer and why is it needed? This is your value proposition.
• Target market: Who is your ideal buyer? Are they seeking a starter home or a more permanent residence? Be specific.
• Competition: Who else is offering similar services?
• Team: Who is on your management team?
• Financial Summary: Explain your business model, startup costs, revenues, and liabilities to the company. Mention your funding needs.
• Milestones and traction: How have you validated that there’s a need for your company in your location?

Position your company’s opportunity

Now that you have an idea of what to include in your executive summary, file that info away for the future.

It’s time to get started on writing your plan. Start with the opportunity section since you are writing the executive summary last. The next few sections of your plan will collectively describe your company’s business opportunity. You’ll cover the problem you’ve identified and the solution that your company offers. Then you’ll think through your ideal customer, your competition, and your opportunities for growth.

This section of your business plan describes what services you provide and how they benefit your customers.

Problem and solution

Think about the specific problem your real estate company will set out to solve. What is missing from the market, something that your competitors don’t provide or don’t provide enough of?

The problem: El Paso is a hot real estate market with lots of young people and families seeking homes on the cheap. They often do not want to renovate a property themselves and would prefer to quickly move into a flipped home.

The solution: PARE shoulders the cost of renovations for young people who do not have the time, knowledge, or money to do it themselves. Think about what sets your real estate company apart from the competition. For instance, PARE relies on its house-flipping capabilities to buy property at lower costs and sell it at a higher price.

When you write this section of your plan, consider talking to customers or potential customers to make sure you are solving an actual problem for them.

Target market

Your target market is your ideal prospective customers. This section clarifies who they are, and how many of them there are.

For example, PARE fixes and flips homes in the El Paso real estate market. With the median age of 33 and the median household income of $37,172, El Paso is a prime market for selling renovated houses to young single people and new families who do not want to bear the burden of redoing a home themselves.

A formal market analysis can help verify that there’s a need for your particular practice in your intended location. You also want to conduct both primary and secondary market research.

Your target market section should include:

TAM, SAM, and SOM

TAM, SAM, and SOM stands for total available market (TAM), segmented available market (SAM), and share of the market (SOM).

Here, you are looking at the difference between targeting everyone (all people in your area who are seeking houses), versus your ideal clients (maybe this is those who are willing to pay extra for a house that is already renovated), versus the number of new home buyers you think you can realistically reach within your first few years.

The idea here is that not everyone will be an ideal customer.

Buyer persona

Create a character who represents your ideal client. He might be a 35-year-old man with a young family, seeking his first starter home.

Ask yourself what he needs from you as his real estate company. Think about what services you can offer to meet these needs. Tailor your marketing and sales plan to attract more people like your ideal customer.

Key customers

If you are mainly selling to consumers, you can skip this section and move on. It is more important for companies who are selling to other businesses.

You might consider partnerships with local businesses who will refer people to your real estate services.

Competition and competition matrix:

List competitors—there are a lot in highly fragmented markets like real estate—and analyze what makes them competitive.

Due to the market’s competitive nature, it has become common for people to decide between full-service real estate agents and real estate agents who charge a “fee per service.” Competitive pricing and additional services are other ways real estate companies stay competitive. Here are some services you ought to provide as a real estate agent.

Future products and services

Name the products/services you will offer as your company earns more money and as your market develops new needs.

Maybe you want to transition from being a solo real estate agent flipping houses on the ground to being a manager of a real estate team. This move can free up your time to pursue more clients instead of dealing with the nuts and bolts of the business on a daily basis. Maybe you want to expand into international real estate markets and reach a global client base. Or maybe you want to have a secondary specialization, such as turning old warehouses into condos.

Describe your big-picture ideas for the future in this section.

Execution: How your company will respond to opportunity

The execution section describes how you will maximize the opportunity for your business.

Components of this section include:

• Your marketing and sales plan
• Strategic partnerships or alliances
• Your operations plan
• Your team and company information
• Financial plan
• Milestones and metrics that you’ll need to hit to be viable
• Your key assumptions and risks
• Your funding ask and exit strategy, if applicable

Marketing and sales plan

In your marketing and sales plan, you’ll say more about how you’ll appeal to the market in your area.

For instance, in 2018, Trulia ranked El Paso in the top five hottest real estate markets out of 100 of the country’s most populated metropolitan areas. It dubbed the city “a hot market for the social young and single set.” These rankings help real estate companies provide the services that best fit their area market.

Learn more about conducting market research before you get too set in this portion of your plan.

What to include:

• Positioning: Describe how you will present your company to the market. A real estate company’s positioning will be specific to your location and to the market segments you are targeting. Create a positioning statement to help you clarify your thoughts.
  • Use this model to help: “For [target market description] who [target market need], [how our business offering meets the need]. Unlike [key competition], it [most distinguishing feature].”
• Pricing: Design your pricing so that will cover your costs and match the market rate. You will want to know the average sales and rental prices in the area. You will want to know the average amount of time it takes a home on the market to sell. And you will want to know the average months of supply, or how long it will take the homes currently on the market to sell.
• Promotion: Explain your advertising plan and marketing tactics, whether they are online, print, or networking. A real estate company can consider partnering with an online listing site like Zillow, organizing neighborhood tours, or using an array of other marketing tactics. Photos help your online listings attract viewers, and many listing sites allow up to 12 photographs of a property. Considering hiring a professional photographer since visuals are so important.
• Strategic alliances: List any people or organizations with whom you are working, such as third-party listing sites. This list would include sites like Zillow and any partnerships with local businesses. You will also need to consult various specialists as you flip the house. These partners can include lawyers, contractors, appraisers, and materials suppliers. Will you act as the flipper and the agent for all homes, or will you sometimes flip a home and partner with another real estate agent to bring you a buyer? There are a host of organizations with whom you might form partnerships, or whom you might simply consult as resources for your real estate company.

For more ideas about how to market your real estate company, read up on how to plan for and implement more real estate marketing techniques.

Operations

The operations section covers how your business works, from the logistics to the technology.

Sourcing and fulfillment

This is how you receive your “products” from other vendors and how you deliver them to your customers.

“Delivering” houses to customers is not your objective. Rather, you attract customers to buy the houses you are selling. However, when you are first starting your real estate company, you will want to work on making and maintaining contacts as prospective clients. These clients will provide you with the first houses you can put on the market.

Technology

Real estate companies now use a variety of exciting new technology.

People in the business predict technology will develop to generate more data-driven insights about which spaces give the best value to residents. Others predict Automated Valuation Models will provide more sophisticated revenue and expense information, possibly replacing financial analysts.

Social media platforms from Facebook to Snapchat offer geofencing ad opportunities that allow real estate agents to find their potential clients and investors on their Smartphones. Notarize provides secure online notary services, a must for a signature-heavy business.

Documentation and information storage

Find an archiving system that works for you. Make sure you train all personnel to stick to the system. Consider creating electronic backups of paper documents. Create PDFs of emails to store them. Research best practices for document management, especially when you’re dealing with private information.

Milestones and metrics

Set start dates, end dates, and budgets for specific milestones, for before and after you launch your business. Set measurable, achievable milestones. Milestones can be about any aspect of your real estate company as long as they emphasize growth. For metrics, decide which numbers to check regularly to track your company’s health.

Key metrics for a real estate company might include:

• Average commission per sale
• Changes in average sold price over time
• Number of days spent flipping a property
• Number of days a property spends on the market
• Average cost of flipping a property
• Number of visits per sale
• Percent difference between asking and selling prices

This section should also include examples of traction, key assumptions, and risks:

• Traction: Look back at major milestones you have achieved. These milestones demonstrate that your business model works and that you are filling a need for your market. Traction is how you convince investors you are worthy of funding.
• Key assumptions and risks: Acknowledge the assumptions you are basing your business on. Set out to prove them right if you can. Also, discuss risks so that investors know you have considered what could go wrong and that you have a plan for dealing with challenges. The real estate market ties in with the overall economy. Economic fluctuations can affect people’s ability and willingness to buy a home. When flipping a home, valuing the property can be a risk. You could pay too much when acquiring a home and not make a profit when selling it. You can never really be 100 percent sure that you valued a home for exactly what it is worth.

You should also prepare for unexpected costs to arise during the flipping process. Maybe you discover black mold under the kitchen sink in a house you are flipping. Avoid buying houses in poor condition. Conduct a home inspection before purchasing, or at least look at the home with someone who knows about plumbing, electric, etc. And avoid renovations that actually lower resale value. Adding a swimming pool, for instance, can turn off buyers due to the risks it creates. Nature poses risks, too.

The properties you buy, flip, and sell exist in given environments and exposed to any risks in those environments, from natural disasters to climate change. There are ample resources on risk management for real estate agents.

Team

Your team can be more important than your product or service. Describe your team here, even if it is just you and a receptionist who answers the phone in your office building.

• Management team and qualifications: Address who works for or with you, what do they do, and how much you pay them. Compile the details of their relevant experience and education.
• Hiring plans: Outline who, if anyone, you need to hire to fill skills gaps in your management team and how much you plan to pay them.

If you will buy and sell houses as a team effort with other real estate agents at your business, make sure to give your clients the contact info of everyone on your team.

Company overview

In this section, include the following information about your company’s legal and organizational structure.

• Mission statement: Your mission statement articulates your goals for what your company does for its customers, employees, and owners. It will read something like this: “Our mission is to provide X (services) for Y (customers) by Z (methods).”
• Intellectual property: List any patents you have or have pending, and mention any core technology you are licensing from another company. Be sure to avoid copyright infringement when you create images and advertisements for marketing your company.
• Legal structure and ownership: Explain your business structure and who owns how much of it.
• Business location: Describe the company’s location and any facilities it owns. For example, PARE resides in a shared office building where it rents private space alongside other startups.
• Company history if it’s an existing company: This provides background for potential new employees.

Financial plan

Your financial plan helps you track your finances so you can accurately gauge your business’s performance.

Include these key elements:

• Profit and loss statement: This explains how your business made a profit or incurred a loss in a given amount of time (typically three months) by listing all revenue and expenses, then documenting the total amount of net profit or loss.
• Cash flow statement: Documentation of how much cash the business brought in, how much it paid out, and the amount of its ending cash balance (on a monthly basis).
• Balance sheet: Snapshots how your company is performing at a given moment by including how much money you have in the bank, how much your customers owe you, and how much you owe your vendors.
• Sales forecast: Projections of what you think you will sell in a given timeframe (1 to 3 years).
• Business ratios: Comparisons of your company’s financials with numbers from the industry profile.
• Personnel plan: Costs of employees.
• Use of funds: Needed if you’re seeking investment or a loan. This section explains how you will use investors’ money, whether for marketing or purchasing inventory.
• Exit strategy: Needed if you’re seeking investment. This section includes a brief plan for how you will eventually sell your company. You could sell it to another company or to the public. List a few companies you might eventually sell to. This is important to investors since it tells them how they will make money from their investment.

Also, consider startup costs. When fixing and flipping homes, real estate agents first need to consider four key costs:

• Cost of property acquisition
• Cost of rehab and repairs
• Carrying costs to flip a house
• Cost of marketing and selling

Reality TV misleads viewers if they go away thinking that purchase price, fix up price, and sales price are the only expenses they need to anticipate when flipping a home.

If you use a third party to find properties for you to flip, you owe them a finder’s fee. If you take out loans to buy properties, expect to pay interest since you do not know when you will finish flipping and selling the property.

And you want to pay for insurance on properties you’re flipping. Home flippers recommend paying for more than a basic homeowner’s policy since additional risks come with renovations. Plan to shoulder all the expenses, not just the basics.

Appendix

The appendix provides a space for any charts, graphs, images, or other items that did not fit in other parts of the business plan. Large sets of data or visual aids can be distracting if they are in the middle of the plan. Instead, keep them here.

You can include expanded versions of your sales forecasts and other financials. Or you can include personnel plans that extend further into the future and display insurance costs for employees. You can also include general assumptions about tax and interest rates in the upcoming months.

Conclusion

Now, go back and write your executive summary! Once you finish writing your business plan, consider next steps, such as market research and branding. To help you get started, you can download our free traditional business plan template or our Lean Plan template. LivePlan can also help you walk through the process of writing your business plan when you are ready to go.

In addition to this guide, Bplans offers resources to help you get started: our Real Estate Business Startup Guide and our free sample business plans for real estate.

Remember that you need to keep reviewing and editing your business plan after you write it. Don’t file it away in a drawer somewhere and forget about it. Instead, use it as a tool to make sure your real estate company stays on track.

from Bplans Articles https://ift.tt/2QsxC8b