Before you buy your first flip property it's important to create a business plan to map-out the future of your business, develop a course of action, and create quantifiable goals for your business.
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House Flipping Business Plan
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Do I Need a Formal Business Plan?
Well no, you don't need a formal business plan to get started flipping houses, but at the very least you should think about what your goals are for your business and set a plan of action on how you are going to achieve those goals.
Okay, then why create a formal business plan?
Reason # 1 To Map Out the Future of Your Business
A well-written business plan can be used as a road-map to plan out the near-term and long-term future of your business.
Reason # 2 To Create a Plan of Action
Your business plan can establish a course of action for your new business, including what you need to do to get started, and your business strategies and processes for managing your on-going business.
Reason # 3 To Set Quantifiable Revenue & Profit Goals
Creating realistic and quantifiable revenue and profit goals is the most important step of creating a business financial plan. You will use your financial plan as a benchmark to track your actual revenue and profits to hold yourself accountable for achieving your desired financial growth.
Reason # 4 To Get Funding From Business Partners & Lenders
A business plan can help communicate your companies' strategies, objectives and company goals to secure funding from your Business Partners and Lenders.
What should be included in my Business Plan?
Here are the 5 components you should consider including in your House Flipping Business Plan:
- Executive Summary
- Organizational Structure, Team & Operations Plan
- Business Systems & Processes
- Business Goals & Strateges
- Keys to Success
The Executive Summary of your business plan is the elevator pitch for your business. The Executive Summary should be a brief overview of your business and summarize the key points of your business plan, and define your business goals.
Your Executive Summary is the first part of the business plan that your investors and lenders will read, so it needs to be concise, compelling and engaging so the readers will continue to read the remaining pages of your business plan.
Your Executive Summary should be tailored to the particular audience that you are pitching. If you are pitching to a Private Money Lender or a Hard Money Lender, briefly discuss your business's value proposition, experience, competitive advantages, business goals and pitch your investors on why they should invest or lend with your company.
Although the Executive Summary is the first section of your business plan, it's often easiest to write the Executive Summary last once you have thought-out and written all of the key points of your plan.
Do you need an Executive Summary?
If you are pitching your business to a Private Money Investor, Hard Money Lender or potential business partner, an Executive Summary will provide a quick 'elevator pitch' to your investors so they can get a quick summary of your business, objectives and needs for funding.
Learn about the different Funding Options for House Flips
If you are writing a business plan as an internal document to help map-out the future of your business, an executive summary is probably unnecessary.
Business Entity & Structure
Before you buy your first flip property you need to decide how you want to organize your business. Are you going to be flipping houses as sole proprietor without creating a business entity? Or are you going to create a business entity, such as an LLC, or a Corporation to mange your business.
In the next Lesson, we will discuss the How to Create an Business Entity for House Flipping Business
Do you have a team or are you a soloprenuer taking on everything yourself?
Write a short resume about yourself and your work experience and provide information about key members of your team.
Talk About Yourself
As the founder of your company, discuss your relevant work/business experiences that make you a strong leader of your company and discuss your role in the on-going operations of the company.
Talk About Your Team
There are a lot of different skill sets and experiences needed to flip houses, so it's important to build a team of experts that can help you along the way. Your house flipping team doesn't necessarily have to be someone on your company's payroll. Your house flipping team can be anyone, internal or external, that is integral in the on-going operation and future success of your company.
Discuss the key players of your Project Team including your Acquisition Managers, Project Managers, Contractors, & Real Estate Agents.
Business Strategies & Processes
Where is your market and what is your typical flip project?
Identify the target markets, school districts, and neighborhoods where you will build your house flipping business.
Understanding your market and buyers is essential to providing a home that meets your buyer's demands.
First, identify the markets and neighborhoods that provide strong catalysts for demand such as strong job markets, good school districts, low crime rates, & proximity to amenities.
In Chapter 2, we will discuss in depth How to Perform Market Research for Flipping Houses.
What type of houses do your buyers want? How much? How many bedrooms, how many baths and how much square feet? What type of finishes?
Narrow down your market research and identify your target market and the characteristics of an ideal flip candidate that you will focus on for your business.
Targeting Your Ideal Flip
Once you identify the market and neighborhoods to invest in, research the property types and finishes that best meets your buyers expectations.
Utilize online resources such as the MLS, Zillow.com
, Redfin, etc. to research your market inventory, property values, and competition that is currently in the market.
It's also a good idea to walk-through as many open houses as possible so you can get exposure to the types of finishes and materials that your competition is utilizing in their flips.
If you need assistance, talk to your local realtor, and they will be able to help you identify the ideal markets, neighborhoods and homes that buyers are currently seeking.
In Chapter 2, we will discuss in depth How to Target Your Ideal House Flip Project.
Where will you get leads and find deals?
Create a plan to start generating leads and finding deals.
Leads & Acquisition Strategies
In order for your business to grow and meet your project, revenue and profit goals, you will need to have a lead acquisition strategy to find leads and deals for your business.
Discuss your lead generation strategies that your business utilizes to find leads, deals and projects for your business.
In Chapter 2, we will discuss different Lead Strategies for Finding House Flip Deals
How will you analyze deals to minimize risk?
Establish the parameters you will use to evaluate deals to determine the maximum purchase price you should offer for a property.
Deal Due Diligence
Once you find leads and deals for your business, you need to have a business process for analyzing deals to ensure your flip projects are profitable.
Discuss your due diligence process that your company undergoes to evaluate a potential flip property. Your due diligence process should involve a property inspection, repair estimate, comparable sales analysis & maximum purchase price analysis.
For more information, we have created an entire chapter on How to Analyze House Flip Deals.
How will you manage projects to minimize risk?
Once you get a deal under contract, you need to have established project management systems to help you track your project progress and expenses to keep you project on-schedule and on-budget.
Project Management Strategies
Once you get your flip projects under contract, you need to have business processes in place to help manage your projects to ensure that your projects are finished on-time and on-budget.
Discuss your Project Management processes to manage your Contractors, Project Schedule & Budgets.
In Chapter 5, we discuss the processes necessary for managing your Rehab projects.
Business Goals & Forecasts
Creating realistic and quantifiable project, revenue and profit goals is the most important step of creating a business financial plan. You will use this financial plan as a benchmark to track your actual revenue and profits to hold yourself accountable for achieving your desired financial growth.
3 to 5 Year Financial Plan
Create a short-term financial plan for your business that forecasts the number of projects, revenues & profits for your first 3 to 5 years of operation.
How many projects do you plan on doing in your first, second and third years?
Forecast the # of projects you will flip in your 1st, 2nd, & 3rd years of business.
The first step of establishing your company financial goals is to plan the number of projects you will flip in a calendar year. Create a realistic goal of the number of projects that you and your team can take on in the first year, and then forecast your project growth for years 2, 3, 4 & 5.
How much revenue do you plan on generating?
Use your forecasted # of projects to calculate the amount of revenue your business will generate in 1st, 2nd & 3rd years.
Once you have a realistic plan of the # of annual, projects you can forecast your revenue goals for each year.
Your Revenue refers to the amount of sales revenue generated from selling your properties. As a part of your market analysis, you need to determine the average resale value of your properties after you make the repairs. Once you determine your average resale price (After Repair Value) you will multiply the number of projects by the average sales price to calculate your Annual Revenue.Annual Revenue = # of Projects per year * Average Sales Price.
Example: In our first year, we are planning on flipping 4 properties w/ an average After Repair Value of $250,000.
Annual Revenue = 4 * $250,000
Annual Revenue = $1,000,000
How much profit will you generate from your house flips?
Use your revenue projections to calculate your profit goals in your 1st, 2nd & 3rd years.
Once you forecast your annual revenue, you can forecast your Net Income (Profit). Generally, house flippers shoot for a profit % of 10% to 20% of the After Repair Value on a project. To forecast your Net Income for the year, multiply your profit % by your forecasted annual revenue.Net Income
= Annual Revenue * Profit %
Example: In our first year, we are forecasting $1,000,000 in revenue w/ a 15% profit margin on all sales.Net Income
= $1,0000,000 * 15%Net Income
= $150,000Learn How Much Profit You Should Expect to Make on an Average House Flip
Keys to Success and Meeting Your Goals
To meet your Company Goals & Objectives over the 3 to 5 year period, your Team will have to execute your business strategies & processes. Over the course of the first few years use your Business Plan as a gauge to track your business progress against business goals.
Project Team/Strategic Hires
As your company grows you will need to consider strategic hires that will fit with your company culture and share our company values.
Your company will need to build strategic relationships and partnerships with local contractors, realtors & professionals to continue to grow your network of connections and grow your brand in the community.
Your company will need to build systems or utilize house flipping software
) that will help your team be more efficient which will ultimately support your ability to take on more projects to increase revenues and profitability.
NEXT: BENEFITS OF FLIPPING HOUSES
Your company will need to build strategic relationships with Private Money Lenders & Hard Money Lenders
to get funding for your projects.