Are you new to real estate investing and want to make it into a business for you? First of all, welcome! And second, you’ll need a plan. Although it may seem pretty cut and dry (find a good deal, obtain the property, and rent/flip/hold the property, and voila! Cash!), there are actually some big things you should be aware of first. But don’t worry. We’ll walk you through your real estate investing business plan and we’ll even throw in a financial model for you to use, just in case.
Figure Out Your "Why" Factor
As with any major undertaking, you should define why you are pursuing real estate investing in the first place. Often described as your mission statement, your reason why will be the guiding factor in all major business decisions.
For example, if you want to start real estate investing so that you can have more of a passive income and spend more time with the kids, that will guide you. You may end up turning down a few deals because you built up a pretty good passive income, and any more properties will take away from the time with the kids, which was your goal to begin with.
Defining your why at the beginning will help you make actions that aid your why. Which is what we are discussing next.
Set Your Goals
Using your “why,” decide what goals you need to set to get there.
If money is your “why”, write down how much you need to make and a timeline for making that much by. If your goal is a number of properties, decide how you can feasibly break that up over the timeframe you give yourself.
Avoid goals such as: “make enough money to retire in ten years” or “have enough properties to support me during retirement.” Those goals are vague and will be difficult to measure because you haven’t defined how much money you’ll need for retirement.
Define Your Strategy
There are dozens of ways to make money in real estate—literally. There is flipping, wholesaling, renting, REITs, commercial real estate, residential real estate… you get the picture.
You don’t need to do them all. In fact, you probably shouldn’t. As a beginner, pick the one you are most familiar with and start there. Make a plan around that, and once you have mastered it (as in, successfully completed several deals in that strategy), if you want to dip your feet in other areas, go for it.
Figure Out Your Financing
Before you go looking for a deal, make sure you have a way to fund it. As a beginning investor, you are probably not going to have many options for private funding, and the bank may not be too excited to give you the best rates on your first deal. You’ll want to leverage equity (if you have any), partner with friends or family with money, or use your own pile of cash to fund the venture—at least in part.
Once you figure out where the money is coming from and how much you have, it’s time to dive in the fun stuff.
The Art of Analyzing the Deal
If this is your first time in real estate investing, you’ll want to find a deal close to home, if possible.
Start by analyzing your local market. If you are planning on flipping a home, you’ll want to buy a sad looking home in the best part of town in order to see a return on your investment. Look into the actual cost of buying and renovating the property, and calculate any monthly or annual fees tied into the deal. This will affect the income you make on the property.
To get a complete picture of what you should look for when analyzing a deal, I've included my personal Financial Model spreadsheet, which you can use to calculate projected cash flow on prospective investment properties.
You can use it yourself by clicking ‘File’ and then ‘Make a Copy.’
Remember that your business plan can change! As you grow in experience and knowledge, you may decide to pivot, and that’s ok. Just make sure you have a roadmap for where you are going.