Your Market Analysis and Specific Business Practices |
Now that you have written about the foundation of your real estate investing company, you are ready to write about the in-depth practices and procedures critical to your company’s success as well as information regarding your specific market. This section is going to be rather lengthy and in-depth. It should be between one and four pages.
Market Analysis
The word “analysis” often scares people who think that analyzing something is too difficult or time consuming. I want to ease your mind. It is actually rather simple.
In this section you need to answer a few simple questions.
- What is your target market?
- Where is your target market?
- What types of property will you purchase?
- What is the price range of your target property?
- What segment of the market will you pursue? i.e. rental or retail? both?
- What type of seller, buyer, renter will your pursue?
By answering all of these questions in your business plan you will give the reader an excellent picture of exactly what market you are going after. If you think that your market is “everything” and “all houses”…you really need to drill down your market to more specific variables. You may have heard the saying, “you can’t be all things to all people” and be successful. You must target one or a few specific markets and really concentrate on becoming the sought after real estate investing authority in that market. Believe me, you will be much more profitable if you can do one or two things very well versus doing 10 things in an average manner.
- What is your target market? Be specific here. How many homes are in your market? What are the demographics such as average income, average house value, etc. These can be found at http://www.census.gov/. Remember, the better you know your market the better you can effectively market them. P.S. If you think that it is unnecessary to learn in-depth information about your market you are really compromising the success of your business and leaving future profits on the table.
- Where is your target market? What geographic location is your market located in? Are you working in two specific zip codes or are you working in several states? Whatever it is be specific.
- So what types of property will you purchase? Run down vacant properties or nice homes with distressed sellers? Describe the property types that you will focus your marketing and energy on.
- What is the price range of the property? Do you want to focus on low dollar properties of under $100,000 or on the bread and butter properties of $150,000 to $250,000 that appeal to the middle income buyer? Make sure that you know what you are looking for so you don’t waste your time on properties that aren’t ideal for you.
- What segment will you pursue? Do you want to only buy and sell or do you want to buy and hold as rentals? If both, what percentage of your business will each be?
- What types of seller, buyer, or renter will you pursue? Are you going after the seller going into foreclosure, the one going through divorce, the one with two homes, etc? What type of buyer do you want to sell to? Do you only want to sell to A credit buyers who can get conventional financing or the buyers who have money but damaged credit (good lease purchase candidates)? The better you can target your customer the more effectively you can market your services and streamline your business procedures.
Specific Business Practices and Procedures
This is where you really describe the inner workings of your real estate investing business. Once again, be specific and thorough.
- How will you acquire properties?
- From whom will you buy them?
- Under what circumstances?
- What methods will you use to find prospective purchases (e.g., real estate agent, bird dogs, advertising, etc.)?
- Will the properties require major rehab or just cosmetic repairs?
- Are there any repairs that will exclude a potential property (e.g., structural damage)?
- How will you determine your offering price?
- Will you use a formula?
- What are the components of that formula?
- What about closing costs, taxes, property insurance, liability insurance, fines, permits, etc.?
- How can you be assured of a profit?
- What is the average repair budget?
- What makes you better than the competition (i.e., the other homes on the market) when selling your completed projects?
Most of these questions are pretty self-explanatory. If a question doesn’t apply to your business model just disregard it. Please feel free to add other information as you see fit that pertains to the procedures and practices of your business that you believe may help to sell yourself to lenders and other prospective business partners.
Remember to use our website as a very powerful tool for your use throughout your real estate investing career. You can find great tools and information that will help you to answer every question in the above list.
Click continue to learn how to write the Marketing/Sales Plan section in step 4 of 8.
