Whether investors own one-family rental homes or multi-unit store, office, and apartment complexes, they are operating a business. Most business experts, including the Small Business Administration (SBA), emphasize that a business plan is an essential prerequisite to the launching of any type of business. For real estate investors, the investment plan functions as their business plan.
Write a Real Estate Investment Plan
Having financial goals in writing makes real estate investing more concrete and attainable and less pie-in-the-sky. This is because organizing the relevant facts and figures helps tame the fear and reckless risk-taking that defeat individuals who fail to prepare.
To create a real estate investment plan:
- Establish personal financial goals, such as desired net worth, the amount needed for a comfortable retirement, and the amount to bequeath to loved ones.
- Set a schedule for achieving those goals, such as five years, ten years, or retirement age.
- Calculate various ways to achieve those goals – including different down-payment amounts to offer and the corresponding amounts to finance through mortgages, and making research-based estimates of the operating expenses of the properties and the rents needed to cover the expenses; this results in target cash flow amounts.
- Understand the types and quantities of property to seek based on those calculations.
- Determine how and when to dispose of the properties.
Tax professionals can suggest strategies for reaching financial goals and minimizing taxes. Investors will get more out of those consultations if they know in advance their net worth goals and cash flow needs.
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