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Having a plan is a necessity in real estate investing. Trying to make decisions on your own without a specific plan of action can lead to disastrous consequences. It is not uncommon for an investor to lose his or her investment due to making bad decisions about investments not initially included in a business plan. Getting started in real estate takes planning and paperwork that have nothing to do with making an investment. Creating a start up real estate investing business plan is one of the first steps that should be taken before properties are considered for purchase.
What a Real Estate Business Plan Should Include
The basic information that you write in a business plan will provide the foundation that you need for all future investments in real estate. No investment decisions should be made without a reason according to your business plan. You could be part of an investment group or in business alone. All of the parties involved in making real estate investment decisions should be listed in your investing business plan and what business formation will be used.
The type of properties that you will invest in should be listed. This helps you stay on track and invest in the areas that you designate and will not cause irrational decisions if a so-called great buy on an investment not included in your business plan comes your way. Investments like rental properties and vacation homes that provide long-term rental income will help you gauge what investments will work best for your real estate ventures.
The funding sources that you will use for each investment should be documented. The use of cash, securities, IRA funds or collateral loans will determine how much money you have to start investing. By sticking to the best source of funding, you will not use your personal income to fund underperforming investments. New investors can fall victim to spending more money than what is being earned.
Property Management and Maintenance
After a property is purchased, repairs or upgrades might be required to transform the property into ideal living space. Having a source for hiring contractors is another element that must be in your business plan. The actual management of the property is what will help you earn back your investment. From collecting monthly rent to handling tenant issues, a good property management team is one of the most important parts of a successful real estate investment.
Additional items in a start up real estate investing business plan include:
• IRA or Investment Trust Account
• Financial Projections (Return on Investment)
• Profit Splits Between Owners
• Taxation Plan and Filing Dates
• Future Investing Goals
• Legal Representation
• Cash or Accrual Accounting Decisions
• Liability Insurance
• Business Liquidation Procedure