If you are starting or growing a real estate flipping business, it is likely that you will need a business plan to provide hard money lenders or investors. The experts at Pro Business Plans have worked with many real estate professionals to create plans for investment and strategy. This article contains information on what is included in a real estate flipping business plan and how it is structured
Real Estate Flipping Business Plan
There are many factors that contribute to the success of a real estate flipping operating, including the deal sourcing strategy , background of the management team, rehabilitation plan, and sales strategy. These unique factors will combine to form a comprehensive business plan that outlines what is unique about your real estate flipping operation relative to the myriad of others on the market, all competing for the same deals and profits. The lure of massive profits and illusive simplicity makes many want to enter the real estate flipping industry, but investors realize that it is much more complicated than face value, so a strong business plan is needed to reflect your competitive edge.
Business Model
The business model section of a real estate flipping business plan outlines such unique factors as the location of focus, target property range, and deal sourcing strategy. The background of the management team can go a long way in demonstrating the viability of the flipping operation. A focused flipping strategy can also communicate the focus of the management team as it applies to positioning. For instance, some flipping companies may focus on gentrifying areas or areas under economic transformation. This helps to complement the normal rise in price due to flipping with an already increasing market for housing prices. However, others may prefer to focus on foreclosed properties in more stable areas that are neglected by most investors.
Investment Strategy
The strategy of a real estate flipping company is based on a combination of factors including how the business will generate a profit based on its targeted investment plan. For instance, some focus on smaller individual homes whereas others focus on high rise residential or commercial real estate.
Operations Structure
The operations section includes information regarding how the business will function in terms of fulfilling its investment strategy and ensuring a positive return on investment. This may include what contractors will be worked with, how the business will actively seek-out and target real estate and expand within the market.
Marketing Plan
The marketing strategy for a real estate flipping operation is design to communicate exactly how the deals will be sourced and sold. In some cases, there may be a create method of sourcing deals that will give the company a unique competitive edge. For instance, some may have a synergistic website or partnership to source leads for homes. Otherwise, it is possible that the company will be competing at the same level for the same deals as the many of real estate flipping companies on the market. The other aspect to the marketing strategy is how the property will be sold. The same aspects to deal sourcing apply, as using agents and brokers may quickly eat away profits and doing it internally can be too slow. Establishing a strong strategy to source and close leads will be a critical part of the plan and serve as one of the most distinctive factors.
Mass Marketing
In some cases, real estate flipping functions through a cash for homes business model in which helps the company to effectively acquire a stream of leads that may target consumers in need of higher liquidity with selling their home a more promising option than defaulting on the mortgage and having the asset seized by the bank.
Business Development
When it comes to business development, at some point, the company will need to liquidity its portfolio either through a broker, or directly to consumers. This can be a time consuming event if the investor works to sell the real estate directly, but a broker may charge very high fees that will substantially reduce profitability.
Financial Projections
The financial forecasts for a real estate flipping business plan are generally provided over a three to five-year period. Such projections will assist banks and investor to form a better understanding of your ability to payback debt and meet their expected return levels. Such financial projections may be formed on a property by property basis, or on the aggregate based on the expected number of properties flipped per year. The structure of the financials will depend on the nature of the investment. For instance, an investment for a specific property should focus on the cash flows and construction expenses for each investment. When investors review the financial forecasts, they will likely gauge the existing valuation of the property relative to others in the area and its historical market value. They will also then consider the proposed changes and costs with how much it could potentially increase the valuation.
Revenue Projections
The revenue projections for a real estate flipping company depend on the cost of capital, financing structure, and investment model. For instance, some flipping companies may target a high return using hard money lending at high interest rates that grant feasibility to the financing structure. In other cases, smaller lower return investments are targeted using internal financing, or financing from an equity investor.
Budget Forecasts
The budget for a real estate company generally focuses around a combination of hard and soft costs for each project, as well as the overall overhead expenses if the company is offering equity or taking on debt. However, many real estate flipping operations are financed on a per-project basis.
