Real Estate Investment Business Plan

Entering a new investment opportunity can be risky, but there are ways to optimize the benefits and minimize the dangers of real estate investment by coming up with a comprehensive plan. A real estate investment business plan will help either, a novice or a more experienced investor follow a specific set of goals toward success. Some have had excellent returns investing in real estate, but it takes work, preparation and most importantly knowledge.

Evaluation the Property, before the Deal as part of a Real Estate Investment Business Plan

One of the most important skills to learn is how to evaluate the product. When investing in electronics, for example one would need to become knowledgeable about this subject, and it is the same with real estate. Developing the ability to look at a property and properly calculate its financial viability is critical to the rest of this business plan.

Whereas, once the investor might have toured a prospective property looking only for a place to live, they now must look at this property as an investment. The novice investor will now need to bring along an experienced investor with them the first time, to make sure nothing is missed. They will need to carry a spreadsheet in which to assess the pros and cons of the property. If possible, evaluation software would also be useful, so that information can be input on the spot and the numbers crunched immediately to save time.

Crunching the numbers for the Real Estate Investment Business Plan

One important figure is the Cap rate which is the net annual income divided by the rate (price) of the property. Here, most investors use the “1 % rule” which means the rental (monthly) income for the property should be approximately 1% of the price paid for the property. While the market can fluctuate and the temptation might be to stray from this rule, it has worked for a long time for many in real estate, and should not be discounted.

Next, using the spreadsheet, estimate the cash flow from expected outflows like principal, interest, expenses, taxes, periods of empty vacancies, fees, and repairs against the income the property produces. Remember to look at the figure annually, instead of monthly. The cash flow can produce the property’s expected rate of return (ROR). This is the measure of profitability versus, the cash that will be put into the project. There are pre-printed spreadsheets and real estate evaluation software that can help with these calculations.

Real Estate Investment Business Plan landlord or investor?

Being an investor in real estate is fundamentally different than simply owning stock in a company. In real estate, there is an immediate responsibility to tenants and renters. Their needs must be met or the return on this investment will be impacted. The question the investor must ask is whether the money from the investment return should be shared with management services, or whether the investor has the time, temperament, commitment and physical ability to be the landlord. Once these factors are investigates an investor has made a great start toward creating a real estate investment business plan that will work.