When people think about starting a house-flipping business, they think about real estate investing and doing home renovations. They don't often think about the less-glamorous but essential parts of running a business that often take place behind the scenes. One of those less-glamorous tasks is writing a house-flipping business plan.
If you're about to get started creating your business plan, read on. We've covered what this document is, why it's essential to your business, and the important elements that your plan should include. Armed with this knowledge, you should be able to create a business plan that shows your company in its best light.
What is a house-flipping business plan?
At its core, a house-flipping business plan is a governing document created by a real estate investor who hopes to start or has recently started a flipping business. Rather than outlining what should be done on one specific rehab project, this document outlines the way in which the property investor intends to run their business.
In truth, this document essentially acts as a blueprint for the company itself. It details specific goals that the investor has for their company, a detailed plan of action on how to achieve those goals, and a realistic time frame in which the investor hopes that each goal will be achieved.
It's also important to note that even though business plans are typically first created when a company is just getting off the ground, they don't stay stagnant. Instead, as the business continually grows and changes, business owners will typically update this document to reflect their updated goals.
Why having a business plan is crucial to building a successful house-flipping business
The thought of sitting down to write a business plan can be intimidating, which can lead many people to wonder whether they really even need to do it at all. However, the truth is that there are three main reasons why every business owner, including those in real estate, should have a copy of this document on hand. They are as follows:
1. It helps you to define your goals
Often, the goals that you have for your business can feel intangible or hard to define. It's easy to say that you want to make more money, but it can be hard to settle on just how much money you intend to make and what steps you need to take in order to get there.
Writing a business plan forces you to take a step back and think objectively about the key elements of your business. In order to formulate a business plan that works, you will need to create specific, measurable goals as well as a plan for how you intend to achieve them in the future.
2. It provides a roadmap for your business
Getting a business up and running isn't easy, and flipping houses is no exception. That said, the purpose of a business plan is to guide you through the early stages of structuring, running, and growing your business. In many cases, it will act as a roadmap as you make important decisions, aimed at keeping you aligned with your goals.
3. It makes you seem more legitimate in the eyes of potential business partners
Lastly, having this document on hand is crucial if one of your goals is to bring on other business partners or investors. Often you'll be asked to give potential business partners or investors a copy of your business plan in order to help them evaluate whether they'd like to be involved with your company.
Put simply, having a copy of this document ready to hand over to them is a sign of legitimacy. If you go to an important meeting without a copy of your business plan at the ready, it may be hard for the other party to take you seriously.
Elements of a house-flipping business plan
Now that you know why having a business plan is important, it's time to get into the particulars of how to put a cohesive business plan together. Truth be told, there is no one correct format for writing one of these plans. However, they usually do follow a similar structure.
We've laid out the key sections for you below:
It can be helpful to think of your executive summary as the pitch section of your business plan. As the name suggests, it summarizes what the reader will find throughout the rest of your business plan. Though this section comes first, many people will write it last, once they're clear on the specifics of their plan.
It's not uncommon for business partners and investors to sometimes make a decision on whether to get involved with a property-flipping business based solely on the information contained in the executive summary, so it's important to get it right.
Your executive summary should include the following elements:
- A brief overview of your business and the needs you serve.
- Your experience and any competitive advantages you have.
- Your business goals.
Lastly, you'll want to be sure to tailor your executive summary to the intended reader. If, for example, you were pitching your business to a private money lender, you might focus on your profit margin, whereas if you were courting a potential business partner, you might focus on the real estate experience you bring to the table.
This section is typically the shortest in your business plan, but that doesn't reduce its importance. It provides an overview of you and your company. It should include information on the following:
- Who you are and your role in the business: What is your role? What unique experience and skills do you bring to the table?
- The company and its history: A brief summary of your company's history, including when it was first established.
- The important members of your team: Short bios for all the important members of your team, like the general contractor or the licensed real estate agent.
- Legal structure and ownership: Are you running your business as a sole proprietorship or a business entity?
- Your mission statement: A short statement about the guiding principles on which your company was formed.
In business, "SWOT" is an acronym that stands for strengths, weaknesses, opportunities, and threats. Performing a SWOT analysis is a way to zero in on the features that make your house-flipping business unique, and it's also a way to analyze your competition and see where you might be behind the curve.
Including a SWOT analysis in your business plan for flipping homes is crucial because it forces you to look realistically at your company. On the one hand, taking the time to do so will help you zero in on your positioning in the real estate industry and what you bring to the table. On the other, it also opens up the door for you to look at the areas where your company could stand to improve and to come up with strategies for how to do so going forward.
It almost goes without saying, but in order to build a successful business for flipping homes, you have to have an in-depth understanding of the real estate market in your area. In particular, you need to have knowledge of the neighborhoods that are gaining popularity with potential buyers and where you'll get the best return on investment.
In terms of what you ought to be looking for, you should focus on finding neighborhoods that are exhibiting strong population growth and job growth. Ideally, they will also have good school districts, low crime rates, and be in close proximity to popular amenities.
Part of doing the research for your market analysis includes identifying your target market, and by extension, the types of properties you intend to go after when you're eventually able to start making purchases. For example, do you intend to go after one- to two-bedroom condos in areas with great walkability or larger family homes that will likely have a higher price point?
Next, it's time to take an in-depth look at your financing options for the business. Not only should this section discuss how you intend to generate the money you need to purchase, rehab, and ultimately flip your first few properties but it should also include your financial projection for a few years into the future.
Your financial strategy should include the following documents:
- Income statement: This is also known as a profit and loss statement or a statement that includes an inventory of your income versus your expenses.
- Cash flow statement: This statement shows where cash is being generated for your business versus where cash is being spent.
- Balance sheet: This statement shows the company's assets versus how much is owed (debts or liabilities) as well as how much has been invested in the business.
Again, initially, these figures can be projections for the next three- to five-year period. However, as your business grows and you begin to make money flipping houses, it will be imperative that you include figures that show how your company is currently doing financially along with those projections.
In order to succeed, every business needs to think long and hard about how it's going to grow. While thinking about scaling your business may seem a bit far-fetched when you're still trying to zero in on the perfect investment property to make into your first flip, having these goals in place will make it easier to understand how to move forward in the future.
With that in mind, think about the ultimate goals you have in place for your house-flip empire. Maybe you want it to be a multi-six-figure-per-year business, or maybe you eventually want to end up on television. Whatever your goals may be, brainstorm some strategies on how you can take your business to the next step.
While you don't have to follow through on all of your ideas, having some strategies in place shows investors and potential business partners that you're thinking hard on ways to make the business last well into the future.
Lead and acquisition strategies
Additionally, it's important to discuss how you intend to find the properties that you eventually intend to flip. Keep in mind that while finding real estate investment opportunities through your multiple listing service (MLS) is one strategy, exploring wholesaling and target marketing are also common tactics you can look into employing.
You'll want to clearly define each of the strategies you intend to deploy for lead acquisition as well as put out a plan for how you intend to implement each of those strategies in your business.
The last business strategy you'll want to outline in your plan is your exit strategy. Put simply, what do you want to do with your real estate investment once you've completed your home renovation?
Most house-flipping businesses will try to sell the property right away in order to reduce the carrying costs. That said, it's also possible to take an alternative strategy and rent each property out for a little while before selling. This second strategy can also serve as an effective backup plan in the event that the real estate market is doing poorly and you need to hold on to your investment while you wait for it to improve.
Goals and objectives
The goals and objectives section of your business plan essentially states how you'll define success in your company. However, rather than looking decades into the future, this section should focus on your unique metrics for success over the next three to five years.
Keep in mind that you'll want to keep each goal specific, measurable, actionable, relevant, and time-bound, meaning that it should have a definitive time frame attached to it.
Six tips for creating a great business plan
Now that you know what sections are included in a comprehensive business plan, it's time to talk about ways to ensure that your business plan presents at its best. These six tips can help:
1. Tailor your business plan to your audience
We talked about this a little bit earlier, but when you're meeting with a potential investor or business partner, it is absolutely crucial to tailor your business plan to their interests. While you certainly don't need to rewrite the whole thing, tailoring your executive summary is a good start.
2. Do your research
A business plan without research is not a plan at all. In order to write a comprehensive plan for your real estate investing and house-flipping business, you need to know your company, your competition, and your market like the back of your hand. In fact, the more you know about the industry you're entering, the easier it will be for you to put your plan together.
Before you even sit down to start to write out your business plan, take the time to do a lot of research. Look up the other house-flipping companies in your area and learn about their business models, join networking groups and ask your peers for advice, and seek out statistics on the internet.
3. Keep it realistic
There's no bigger tell for a novice business plan writer than including figures and projections that are totally unrealistic. For example, claiming that your house-flipping business will easily clear over a million dollars in profit within the first year. While it would be great if that were to happen, it's also highly unlikely to occur.
Instead, keep it realistic. Most business plans tend to project three to five years into the future. While you're writing your plan, only focus on the strategies you'll be able to use and the goals that you'll actually be able to accomplish during that time frame.
4. Make sure to back up any claims
Along those same lines, you need to be careful about any claims you make while writing your business plan. For instance, it's easy as an excited entrepreneur to claim that your company will take the real estate market by storm, but it's very hard to back up that claim with any sort of substance.
When you're putting together a business plan, being able to back up your claims with the appropriate proof will add validity to any claims you make. It will also make it easier for potential investors and business partners to take you at your word.
5. Stay to the point (but be convincing)
People in the house-flipping business are typically pretty busy. To that end, you'll want to try and keep your business plan as short, sweet, and to the point as possible. At the same time, however, you'll also want to do your best to write persuasively.
This is where it becomes important to be able to edit your work. Usually, a business plan will go through multiple rounds of revisions before it's shown to anyone who's being courted by the core team members.
6. Get feedback first
Along those same lines, if at all possible, it's a good idea to get feedback on your business plan from someone who has real estate investing experience. Hopefully their feedback will be able to help you see where you can improve so that your end product shows its best when it's ready to be given out to potential business partners and investors.
The bottom line
Writing a comprehensive business plan is an important part of launching a house-flipping business. Use the information provided to help you structure your plan in a way that makes sense to your reader. When created using a mixture of industry research and first-hand real estate knowledge, there's no reason why this document can't become a handy tool to help you take your flipping business to the next level.