Want to increase your chances of success in the world of real estate investing? Then don’t overlook this step most new investors miss — creating a business plan for real estate investing…
Because your business plan is your roadmap to success….
And you need a clear plan of action if you want to achieve your business goals…
And potentially make your dream of generational wealth through passive income a reality.
Plus, lenders will often require a detailed business plan before approving your loan…
And a good business plan could also help you attract great partnerships or successful real estate investors for your deal.
So don’t skip this step…
Invest in yourself and your business by creating a solid business plan.
It’ll likely pay off in the long run.
WHAT IS A BUSINESS PLAN FOR REAL ESTATE INVESTING?
A real estate investing business plan is a document that lays out:
- Your goals as an investor
- Your real estate investing strategy
- How you plan to use loan funds, investments, and capital
- How you plan to operate and manage deals
It is a blueprint you can follow even in the worst-case scenarios…
And it helps to keep you focused on ONE strategy…
Instead of dabbling with too many different strategies.
This could also help you master the real estate game sooner rather than later.
WHY I USE A REAL ESTATE INVESTING BUSINESS PLAN
Here’s an example of why a business plan matters so much in multifamily investing.
During my December 2022 Real Estate Summit…
I logged into my multifamily database and explored tons of deals for my audience.
I saw a cute little 20-unit deal…
And I started thinking, this could be interesting.
It was $233,000 a door, with a 7% cap rate.
The seller said rents can go up by $400.
It wasn’t a bad deal.
I daydreamed about it for a split second, then snapped out of it.
I knew I was never going to buy this deal… no matter what.
Why?
It’s not a part of my business plan and investment criteria.
Here’s a brief overview of MY business plan for real estate investing:
Today, I personally only invest in great assets that…
- Are in great locations and markets where:
- The rent is less than the cost of homeownership
- There are decades of projected job growth
- Real estate market demographics are more likely to rent than own
- Can be bought at or below replacement cost
- Contain 200 to 1,000 units
- Produce enough cash flow to cover:
- Operational expenses
- Improvements
- Insurance
- Taxes
- Debt
- Can be leveraged with good debt
- Are likely to increase in rent over time
- Are likely to appreciate in value
- Can be refinanced, so my investors and I own the rental property with no money invested.
I never deviate from this criteria.
Yes, there are tons of great deals out there with less than 200 units…
But those deals meet someone else’s criteria, not mine.
It does mean I have to be extremely disciplined…
And I have to know EXACTLY what I want… and what I’m built for.
I don’t waste time on deals that aren’t a part of my financial plan.
Of course, it doesn’t mean you have to follow exactly what I’m doing…
Because you SHOULD have a completely different business plan from me.
You should know your personal reasons for being in real estate.
You should know exactly what you’re looking for.
Stay disciplined and focused.
Skip the crappy deals…
Stick to the path that is most likely to bring the generational wealth you deserve.
Next…
THE 2 IMPORTANT TYPES OF BUSINESS PLANS FOR REAL ESTATE INVESTING
For the purposes of this deep dive, I’m going to talk about TWO different types of business plans.
The first type of real estate business plan is for yourself, kind of like the example I showed you above.
It’ll guide your investing decisions and help you stay the course.
The second type is for your lenders and investors, and it helps them see:
- Why and how the deal is likely to make money
- How the investment property will be managed well
- How much capital you will need
- Why anyone should trust you with their money
YOUR PERSONAL INVESTING BUSINESS PLAN
So let’s talk about the type of business plan you write for yourself as an investor.
This is something you do when you make the commitment to become a multifamily investor.
You will need to take some time to sit and think about exactly what you want…
So you can go out there and talk about your investing vision with conviction.
Trust me, you’ll need that conviction when approaching fellow investors, lenders, and brokers.
Your FREE 10X Investor Business Plan
(1) Set your 10X Investor goals.
In true 10X style, write your long-term goals as if you have already achieved them.
(2) Perform a market analysis.
Where will you invest?
What qualities are you looking for in these markets?
(3) Define your investing criteria.
Define the TYPE of deal you are looking for as clearly as possible. E.g.:
- The number of units
- The property class (A/B/C/D)
- The location class (A/B/C/D)
- Your LTV (Loan-To-Value)
- Your Cash-on-Cash Returns (%)
- Your purchase price
- The maximum amount you’re willing to pay for rehab
(4) Know how you will find deals.
You want to keep your pipeline full.
Always have deals to look at and brokers to talk to…
So you never have to settle for crappy deals.
(5) Know who your lenders are.
Who are the top commercial lenders or hard money lenders in your area?
(6) Know who your equity is.
Are you going to raise funds from family and friends?
Or form a joint venture with other active investors?
Or start a syndication with general and limited partners?
*Always seek a licensed professional’s guidance. See full disclaimer below.
(7) Know your team.
Who will be your sponsors?
Which property management firms will you be working with?
Who is your:
- Accountant?
- Real estate attorney?
- Syndication attorney?
(8) Define your exit strategies.
When do you plan to exit the deal?
Who could your next buyer be?
Do you plan to refinance?
***
Stay disciplined and stick to your criteria.
And say NO to any deal that fails to meet your criteria.
If you apply your business plan template to your market…
And realize it could limit you to terrible deals…
Then adapt your business plan and expand your target market.
WRITING A BUSINESS PLAN FOR YOUR LENDER
This is a different kind of business plan that could increase your chances of securing a loan for your deal.
Ready?
DEAL → DEBT → EQUITY
Found a great deal?
Now you have to secure the debt.
You should create a SEPARATE business plan to present to your lenders.
This is ESPECIALLY crucial when working with commercial lenders.
Many banks and lenders have specific loan programs for multifamily commercial properties…
Because they recognize the value and stability of these investment opportunities…
So if you have a rock solid investment plan in place…
And you show them how you’re going to manage, improve, and hold onto this property for the long term…
They are more likely to lend you money.
WHAT MAKES A GOOD BUSINESS PLAN?
Ultimately, you’re making a case for how your investment is likely to make money and succeed…
And why banks should trust you and approve your loan.
In general, here’s what makes a successful business plan for real estate investing:
- Demonstrates conservative and realistic projected financials.
- Shows a good credit history (belonging to at least ONE of the business partners on the deal).
- Features a great Debt Service Coverage Ratio (DSCR).
- Takes into account current and future market conditions.
- Presents a solid property management plan.
NOTE: Even financially solvent borrowers can be turned down for loans because of lack of experience managing the property. *See full disclaimer below.
If you show in your business plan that you’re partnering with someone more experienced…
Or working with a reputable property management firm…
You could increase the likelihood of securing your loan.
PRIOR TO WRITING YOUR BUSINESS PLAN…
Before putting together your business plan for a particular deal…
You need to DEMONSTRATE how you are going to create enough cash flow…
And prove you are capable of repaying the loan and managing the property.
Here’s how:
- Gather as much information as you can from your broker, lender, and property management firm
- Thoroughly underwrite your deal’s income and expenses
- Budget for Capital Expenditures (CapEx): one-off improvements you plan to make to the property, e.g. a new roof or gym
- Project the property’s income and expenses for the next 10 years
- Create attractive slides with pictures of the deal – show, don’t tell
THE 10X INVESTOR’S BUSINESS PLAN FOR POTENTIALLY SECURING DEBT
(1) Talk about the HIGHLIGHTS of your deal.
Focus on answering this question: What is the OPPORTUNITY here?
(2) Go into more detail about the deal.
- How many units are there?
- What is the property class?
- What kinds of units are there? (1-bedroom, 2-bedrooms, etc.)
- What are the unit sizes?
- What year was it built?
- What are the current rents?
- What amenities are there?
- What is the occupancy rate?
Also share the Profit-and-Loss Statements from the past 3 years, T-12 statements, and rent rolls.
(3) Describe what’s so GREAT about your market, sub-market, and location.
- Why is this a good market?
- What are the population trends?
- What are the job market trends?
- What’s great about the location?
- What is the location class?
- Who are the top employers in the location?
- What are the great schools, businesses, and stores in the area?
- What is the target renters’ background (type of job, household income)?
- What is the occupancy rate in the area?
- What is the average market rent in the area?
Etc.
(4) Show who’s on your team for this deal.
- Who is the broker?
- Who are your partners? What are their track records?
- Who is your property management firm? What are their track records?
(5) Show exactly how you will use your capital.
- Why are you requesting this loan?
- What is your purchase price?
- Where will your equity come from?
- How will you use this capital?
(6) Define your budget and plans for:
- Improving rental income
- Raising rents
- Operating expenses
- Rehab and renovation
- Capital Expenditure
- Managing the property
Include your plans for the best and worst-case scenarios.
(7) Share the financial projections for the best and worst-case scenarios.
- What is the property’s projected income?
- What are the property’s projected expenses?
- What is the projected Cash-on-Cash Return?
- What is the Internal Rate of Return (IRR)?
Etc.
(8) Outline the exit strategy.
- When do you plan to exit the deal?
- Who could your buyers be?
- Do you plan to refinance?
(9) Present borrower info.
Share your past experience in multifamily…
Or leverage the experience of a more seasoned partner…
And prepare to share the credit history of at least 1 partner.
5 MISTAKES TO AVOID WHEN CREATING YOUR BUSINESS PLAN
If you want to dominate the real estate game, avoid these common pitfalls when creating your business plan.
(1) Don’t just wing it.
Have a clear vision of what you want to achieve and how you’re going to get there.
(2) Don’t just assume you know what properties and locations are in demand.
Do your due diligence and make sure there’s a market for what you’re buying and selling.
(3) Don’t be fooled into thinking a property is a good deal just because it’s cheap.
Factor in all the costs associated with acquiring and renovating the property, or you’ll end up in the red.
(4) Don’t overestimate your returns either.
Be conservative about what you can expect to make, based on market data and your own business experience.
(5) Don’t try to figure it all out alone.
If you’re new to the game, find a mentor who can help you avoid pitfalls and make smart decisions.
That’s why I want to share with YOU a wealth of business experience at my Real Estate Live Webinar …
Go here now to secure your 100% virtual free seats…
And I’ll see you in a few days.
Be Great,
Grant Cardone
Disclaimer: This content is intended to be used for educational and informational purposes only. Before investing, you should always do your own analysis based on your own financial and personal circumstances before making any investment. Grant Cardone is an industry expert who has been investing for over 30 years and his opinion is based solely on his own personal experience and circumstances. Individual results may vary. You should perform your own due diligence and seek the advice from a professional to verify any information on our website or materials that you are relying upon if you choose to make an investment. Investment involves great risk and there is no guarantee of performance or results.
We are not attorneys, investment advisers, accountants, tax professionals or financial advisers and any of the content presented should not be taken as professional advice. We recommend seeking the advice of a financial professional before you invest, and we accept no liability whatsoever for any loss or damage you may incur.
