Writing a Real Estate Business Plan that Lenders Will Love

Your business plan is not only a great sales tool, but it will also help you to think more deeply into your real estate investing business from varying angles. Of course, a big part of your business plan is to keep you on track through the growth of your business. However, it is very important that you write your business plan in a way that will make lenders and your other business partners want to work with you. Read on to learn what elements need to be in your business plan and even how to write it step by step.

The Sections of Your Business Plan

There are certain elements that must be included in your business plan. All of these elements should be included, but by no means think that you can’t add more if you choose. The required elements are (in order):

• Executive Summary
• Company Overview, Business Model, and USP
• Your Market Analysis and Specific Business Practices
• Marketing Plan
• Implementation
• Financial Plan
• Important Assumptions
• Closing Statement

Once again, all of the sections above should be included somewhere in your business plan in order to comprehensively lay out your complete business on paper. I know it seems like a lot of work…and it is. But, if you are truly serious about succeeding in real estate investing (or any other business for that matter) YOU MUST write a business plan. Starting your business without a business plan is like going to war without a strategy or tactics. In war, without a comprehensive plan outlining everything possible, you are setting yourself up for slaughter. The same goes with real estate investing.

Now I will go over each of the elements in the above list one by one so you have a clearer picture of what needs to be in each section. If you still aren’t clear about something after I’m done, go to our forums page by clicking the link at the top of this page and post your question on our business planning thread.

Executive Summary

The executive summary is just as it sounds. It summarizes your complete business plan into a short and precise manner. Your executive summary should be no longer than a page or so and should cover the “bullet points” of your business plan. Often, it is best to write your executive summary last so you can summarize all of your other sections more easily.

Ask yourself, “what are the most important pieces of information from each section?” It is these bits of information that will entice the reader (hopefully a lender or other business partner) to get excited and read on. Many times lenders or business partners will ask only for your executive summary. So be sure to make it interesting enough for people to want to learn more. I have placed an example of an executive summary below.

EXECUTIVE SUMMARY The company is a start-up business venture developed by two individuals for the sole purpose of investing in residential real estate. This business plan lays out a simple strategy for developing a long-term real estate investment company by leveraging an initial investment of $43,000. Our business model is to market the company to a consistent stream of motivated sellers that are willing to accept discounted wholesale prices for their property. The properties are primarily resold at retail prices to generate working capital for the company. We pay all closing costs and do not use real estate agents to execute the transaction, thus eliminating agent’s fees. Often, there is not a substantial difference between our offer and the net cash an owner would receive by listing their property with an agent. The owner will pay 6% of the sales price in agent’s fees and 4% in closing costs. We can close on a property in as little as seven days, while the average days on the market for a house listed with an agent is fifty to sixty in our region, in addition to a thirty-day escrow. Our value proposition of an all-cash offer with a fast escrow close is often a good option for the owner/seller who recognizes the benefit of speed to cure their financial situation. As home prices rose dramatically in the past several years, individuals who were only marginally qualified to purchase increasingly expensive homes resorted to zero-down and low-down mortgages, along with adjustable rate mortgages, made available by the mortgage industry. The result was an affordable, low monthly payment on properties that had little or no equity. As interest rates rise and balloon payments come due, marginally qualified property owners are less able to meet their mortgage obligations. It’s these property owners that become motivated sellers and the primary focus of our marketing efforts. The financial goal is to leverage $43,000 in seed money into a stable company with a Balance Sheet in excess of $1 million in assets after the first three years of operations. To achieve this goal, we intend to buy twenty-four properties by the end of our third year, generating net revenue of $532,000 from the sale of nineteen properties and equity of $150,000 from holding five rental properties. Primarily, revenue is forecast from two primary streams of income:

Net Profits from Buying and Selling Property

Rent from Long-Term Rental Property

The company’s revenue for the first twelve months is $112,000, consisting of net sales from the sale of four of four properties acquired in that year. Revenue increases to $242,292 in the second year based on acquiring an additional eight properties, selling six of the properties and retaining two as long-term rental properties. Revenue rises only moderately in the third year to $296,822 based on acquiring an additional twelve properties, selling nine of the properties and retaining three as long-term rental properties. The company’s net profit in the first year is $94,680 in the first year, decreasing to $44,792 in the second year due to payroll and benefit costs and decreasing slightly again in the third year to $11,692.
The company’s Total Liabilities and Capital for its first three years of operations are $138,018, $517,529, and $1,107,697 respectively.

Continue on to the next page to learn how to write the Business Model and USP section of your business plan by clicking below.

The company’s revenue for the first twelve months is $112,000, consisting of net sales from the sale of four of four properties acquired in that year. Revenue increases to $242,292 in the second year based on acquiring an additional eight properties, selling six of the properties and retaining two as long-term rental properties. Revenue rises only moderately in the third year to $296,822 based on acquiring an additional twelve properties, selling nine of the properties and retaining three as long-term rental properties. The company’s net profit in the first year is $94,680 in the first year, decreasing to $44,792 in the second year due to payroll and benefit costs and decreasing slightly again in the third year to $11,692.
The company’s Total Liabilities and Capital for its first three years of operations are $138,018, $517,529, and $1,107,697 respectively.

Continue on to the next page to learn how to write the Business Model and USP section of your business plan by clicking below.