Real Estate Industry is one of the most sought after industry in the entire world including the United States. The industry has made many of its investors as billionaires and is continuing to do so till this day.
Nearly in all known jurisprudence system of the world property has been given an immense recognition and importance. The recognition and protection of the rights related to property have made the importance of properties to multifold.
Real Estate thus has seen immense investment and growth nearly in all countries that have seen growth especially the rise of urban cities have increased the value of real estate as more and more people have migrated to urban areas looking for employment and thus looking for shelter is obvious.
United States especially in its growing years have seen the unprecedented growth in real estate. There was a time of stagnation in growth but it has resumed again covering areas which were relatively not covered in the industrial age growth period.
A conclusion can be drawn that real estate business is one of the leading sources that generate both jobs and revenue and has huge consumer base in the United States. Another conclusion that can be drawn from this is that investors and creditors do get inclined in this industry as easy money making investment in comparison to other sectors.
Meaning of Investment with Respect to Real Estate Business
In order to start your real estate business there is lot of capital investment required. This starts with acquisition of land and other such properties and then initiation of construction in making real estate properties.
For doing all this there is lots of credit required which may not be possessed by you and therefore an additional credit is required which can be in the form of bank loan, credits, partnership investment and investment.
Thus bank loans, investment by partners as equal shareholders of profits and liability and investors aiming for only a percentage of profit without liability are the major forms of investment in the real estate sector.
Thus it can also be stated that for a real estate business in order to commence its business it is of utmost importance to attract investors and get some capital invested in order to start the business.
The question now arises that how can a real estate business can attract new investors and creditors or secure loan from banks. The simple answer can be approaching these potential investors and creditors with a documented and brief plan regarding your real estate business, convincing them for investment and negotiate terms for the same investment.
Documenting your brief plan means writing down all the important things necessary related to your real estate business in a manner that it represents the whole vision of yours related to the business.
This is called a business plan which is a documented expression of your vision and plans related to the business and how you will achieve all the plans you have made.
Business Plan for Real Estate Investment
Investment is the key to your successful startup of your business and therefore you should leave no stone unturned in order to impress and attract investments. Business plan is the document that will help you in presenting your case to your potential investors.
A Business plan should specific, achievable, measurable, and realistic and time specific in nature in order to achieve the goals it has set. Real estate businesses have the tendency of getting delayed for various reasons. An unspecific and unrealistic plan can be a major reason for such delays.
There is lot of research required in order to write down a meticulous business plan. It cannot only be subject to your imagination but it should also be backed with facts and figures that represent the ground realities of real estate market in United States.
Thus a business plan should be drafted while caring all the existing factors that can influence the future of your business. Such a business plan not only succeeds in execution but also impresses the potential investor reading it.
An Overview: What your Business Plan Must Include?
Your business plan should be sub-categorized in order to focus on each and every subject relevant with your business. All such subjects should be neatly and briefly explained. Each of these sections are to be interconnected in order to give the definite result it aims to achieve.
Some of the subjects and sub-categories can be summarized as:
- Summary of your Business
- Missions and Objectives
- Goals and Vision
- Strategy deployed for achieving the goals
- Timeline for achieving the aforesaid mentioned goals
- Area of Specialization and Criteria
- Target Market
- Financial Plan and Structure
- Team and Organization
- Backup Strategies or Plan-B
- Future of Business
Summary of your Business
Write in detail regarding your business, the year in which you have started it, who are the founding and executing members of your business, properties that is acquired owned by the business, your present team, properties owned by your business, properties involved both movable and immovable, etc.
Be honest in writing down every details as it directly impacts your business not only at the time being but in future as well. A false statement may have serious repercussions. Mention details regarding the object clause of your business, memorandum of association and articles of association.
Mission and Objectives
Missions and objectives of your business will contain specific details regarding the mission for which you formulated your business and its objectives. Write down each and every such mission and objectives for which you have started this business.
If you are a registered company then mention the details of memorandum of association which contains the object clause for which your company was incorporated. Articles of association contains details regarding how you will deal with members of your business.
The object clause hold value since it determines the diversity and limited in which your business will operate. Your investors and creditors will have a thorough look on this clause and therefore it should be correct and precise.
Goals and Visions
Mention the vision of your business in detail. You may be attracting investment for a specific project of real estate but a vision is beyond one project. It has short term and long term plans that you aim to achieve.
Your goals too are long and short term. Mention them in detail and also supply the reasons for such goals. Your real estate business may be only operating for housing apartments or commercial buildings. Such details should be mentioned.
You should also mention what kind of projects you aim to start, how you will proceed ahead, about your resources, etc. How many projects and of what worth do you aim to invest in and what are your plans for the same.
Strategy Deployed for Achieving Such Goals
What is your strategy to achieve all the goals and aims you have mentioned? How will you manage such projects? How will you manage the finances? In case of loans how will you furnish the loans back? What will be your target market and who all will be your customers?
What are your resources and how will you arrange all such resources? There can be multiple strategies or single strategy depending on your prudence you can choose as you think fit.
Be definite in your answer and don’t be vague. A comprehensive research of the market and regarding your real estate business interest can make you write those answers comprehensively and with confidence.
It is also very much possible that your plans will change with time and so is your strategy but you don’t need to worry for that for the time being. Mention these details in present time and don’t explore uncertainty as it will lead to vagueness in your answers.
Timeline for Achieving the Aforesaid Mentioned Goals
Time matters a lot in real estate business. A delayed project can consume much amount of money which can lead you to loss. There are also various laws that put sanctions and fines on real estate developers who get late in completing their projects.
Be specific regarding the timeline by which you will finish your project and handover the estate so constructed to the customer. Also provide the reasons why you will take that much time.
Be realistic in your approach as any vagueness in mentioning the timeliness will easily be identified. If you are taking a year to finish a particular project mention why that much time will be taken.
Break the time limit into small time frames according to the percentage of project completion. Also mention what factors can influence a delay in completion.
Area of Specialisation and Criteria
You may be specialized in dealing with residential apartments, or you may be specialized in dealing with commercial apartments. There are wide range of subjects in which real estate businesses operate.
Since you are new in the business therefore you should be specific and limited in your specialization. This doesn’t means that your specialization will be exhaustive but it just indicative for the time being.
Criteria is your own conditions that you will have while accepting investments. Some investor may want you to invest in projects for which you are not equipped. Therefore mentioning them in your business plan clears any doubt.
Your target market is the area by locality and market by subject in which you will operate. It is similar to area of specialization with distinction being the location.
Your place of real estate business will matter in fetching investments. Places that are in demand and are competitive in nature results in higher sale and return on investment. Land that is undisputed and has brighter future prospect attracts more investors.
There are also areas in real estate that are very prominent and have higher stakes. Such market gives huge return on investment and are also risk free. Whereas some areas are riskier due to lack of demand, complexity, place of operation, etc.
Your distinct and detailed mention of your target market will make it amply clear for the investor to determine whether he will be investing there or not. It is obviously up to you to convince him why your target market has high chances of success.
Financial Plan and Structure
Some real estate projects are cheaper and some are costly. Depending upon your choice you have to outline how you will manage the financial aspects of your project. Whether you have ample sum of capital to start your business and you are inviting only a small percentage of capital from investment or you are entirely dependent on investors.
Clearly write down step by step details of your financial structure. What properties you own, what will be invested in business, what percentage of capital will be taken as loan and what will be organized through investment.
Also mention the structure of your finance regarding returns of profit earned to the investors, your share, share that will be reinvested, other expenses, etc. Every person investing in your business will like to know what your financial structure is.
Financial Structure Contains:-
- Investment guaranteed by shares
- Investment based on equity with equal share of profit and liability
- Investment based on percentage of profit from the whole
- One time specific investment with fixed return based on investment
- Investment based on reinvestment of profit earned
Team and Organisation
Write down about your team. Mention the key players of your business. Mention their stake in your business along with profit percentage and liability.
Number of people employed based on what conditions. Whether they are employed subject to profit of the company, are employed through salary or are employed contractually.
Mention about your organization, its achievements, its values and ethics. Write down the specialties of your team and their skills.
Backup Strategies or Plan-B
Real Estate projects work with an ample chance of failure, delay and subsequently loss. What if your plan fails? What are your other options? How will ensure that you somehow manage to reach your objective?
A Plan-B is therefore essential that should be mentioned with the same details. This generally includes alternatives for additional capital, regarding other businesses to compensate losses, financial security and insurance, etc.
Future of your Real Estate Business
A business has to grow it cannot be stagnant. After completion of particular project and objective you will move ahead with another. Though it is obvious that you cannot forecast each and everything regarding the steps you will take in future but you can surely draw an outline of the same.
What will be the objectives on which your future business will be based? Whether you will expand or will you be limited to the present field? Is real estate business a supplemental way of income for something big you aim to initiate? Write down each such details shaping the future your business.
Real estate investment is the purchase, ownership, management and sale of real estate for profit.
Potential risks associated with real estate investments include market and economic conditions, tenant profiles, and legal regulations.
A primary real estate investment is the purchase of an income-producing property with the intention of earning income directly from the use of the property or through appreciation, such as buying a rental property. A secondary real estate investment is an indirect form of investing, such as purchasing stocks or real estate investment trusts (REITs).
The potential returns on real estate investments can be significant, ranging from cash flow earned from rental income to long-term price appreciation.
The first step to getting started with real estate investing is to assess your financial situation and understand the different types of real estate investments available.
Direct real estate investing involves the purchase of a physical property, such as a rental property, to generate income and appreciation. Indirect investments involve the purchase of stocks, real estate investment trusts (REITs), and other real estate securities.
There can be significant tax implications associated with real estate investing, depending on the type of investment. Income, losses, and capital gains can all be subject to taxation.
Real estate investment can be a complicated endeavor, and expertise is necessary in order to maximize return on investment and minimize risk. It is important to research the type of investment you are interested in and speak with an experienced real estate professional to weigh your options before getting started.
Real estate investing can be an effective tool to generate income, build wealth, and diversify investments. However, it is important to understand the risks associated with real estate investing and weigh the potential rewards.
The types of real estate investments available vary widely and include residential properties, commercial properties, and properties for development or speculation. Different types offer different levels of risk and return.