Diversifying your investments is proving to be more crucial than ever. With so many ideas floating around, it gets tricky to know which kinds of business ideas are more profitable and less risky.
That said, one thing is for sure, house-flipping businesses are booming!
If you settled on starting a house-flipping business but don’t know how to go about it, don’t worry. We’ve got you covered!
Today, you’ll learn all the tips and tricks for developing a thorough house-flipping business plan. We’ll cover all the basics, from what it is and why you need it, to a detailed outline with all the elements you should include.
What is a House Flipping Business Plan and Why Do You Need One?
A house-flipping business plan is a detailed description of the tactics used by a particular company when it comes to flipping different properties. Yes, a great house-flipping plan can be applied to many more properties than you think.
Crafting a detailed business plan can boost the ROI of your house-flipping business, making it more profitable while using the same exact resources. But how does that work?
By managing the resources right, decreasing the number of delays, and choosing the best property based on research and data, not sheer luck.
House Flipping Business Plan Outline
Here are the five most important parts of a successful house-flipping business plan. Make sure to include all of them if you want to attract the attention of a real estate investor and get the money you need.
Executive Summary
The executive summary is essential to get the attention of the real estate investors you’re targeting. It works as an elevator pitch for your whole house-flipping business plan. That’s why you have to get it right!
Imagine you’re presenting the plan to someone who’s in a hurry and won’t have the time or the desire to read every single detail.
Well, that’s exactly why you need a succinct executive summary covering all the facets of the business plan, giving some context to each one.
They should get a basic understanding of your intentions and how you plan on bringing in a profit.
Pro Tip: Write this part AFTER you wrote the entire thing. It will be easier and better.
Mission Statement
What are your core ideas? Why have you started a house-flipping business? What are your company’s ground rules?
The answer to all these questions should be covered in this part of the business plan. This part shouldn’t be longer than one page, so be concise and clear with your words.
Market Analysis
If you are flipping houses without doing any market research, you’ll probably go bankrupt faster than expected. All house-flipping businesses base their transactions on historical data, not on their ideas of how the market works.
The first thing you should cover in your market analysis is the area you’re trying to buy a property. If you’re new to that city, try using at least one year’s worth of data to better understand what’s going on. Export price data, price changes in the area, sale data, and the average time a property is sold.
After this, you can tell if the area is profitable. If it is, continue researching the real estate market for more precise metrics. Start by indexing the data about what types of properties are the most popular in the area. Also include a demographics section in your analysis.
Most experienced real estate agents will tell you that you can find a demographic pattern in every neighborhood. For example, if you’re targeting young buyers, you won’t search for a property in a rich area with two-story houses but rather a single-bedroom apartment.
All this data can be found on resources like Realtor.com, Census, or the official website of the US Department of Housing and Urban Development.
While using these tools, make sure to put the data in the right state or region you’re searching for. Many beginner house flippers make the mistake of believing that the prices don’t vary much, but house flipping in Virginia can be very different from house flipping in Maryland.
Budget and Financial Projections
Every flip you do has to have its own financial plan. Without one, your house-flipping company will soon be just another flop, turning all your efforts into bankruptcy statistics.
Before you consider buying the property, calculate all the flipping costs. After you get that, add another 20% to create the budget for your flip. You need to add those 20% because, in most cases, your flip won’t fall entirely within the budget you allocated.
You might have problems with the labor force, the materials you buy might not fit the place you anticipated, you’ll have to pay taxes you didn’t even know existed, and so on. All these expenses must be covered if you want to sell that house for a profit.
Also, creating a realistic budget will increase the chances of getting a loan to flip the house. In most cases, banks and hard money lenders don’t need a business plan to give out a loan. But when they do, you should do everything perfectly, get the loan, and make some money!
Marketing and Research
You can’t sell a house if nobody knows you’re selling it. A great house-flipping business plan must include the work of your marketing department. This way, you won’t have to outsource the process of selling the properties to a real-estate agency, keeping a better portion of the profit for you and your employees.
First of all, determine the target market. Use the market research you did earlier to decide what category of people you’re selling the house to and direct all your resources toward them. If you’re working with young adults, for example, place ads on Instagram, Twitter, YouTube, or even TikTok!
Also, don’t forget to cover all the marketing fronts. Direct mail marketing, digital marketing, networking, and even real estate investment clubs. All these instruments will help you sell the property faster, preparing you for another investment opportunity.
Exit Strategies and Backup Plans
What will you do with the property if you can’t sell it? If you can sell, for how much and when can it go? If you decide to rent it out, will the rent cover all the carrying costs of the house?
All these questions must be answered in this part of your house-flipping business plan.
Benefits of Writing a House-Flipping Business Plan
For most beginners, writing a business plan for every house you flip might seem like a silly idea, but in reality, it is necessary. Here are the benefits of writing a house-flipping business plan for every property:
- Clear Roadmap: With a business plan, you’ll always know what to do and when. You won’t be in the position of figuring it out on the go. Also, by having a clear roadmap from the beginning, you’ll be less likely to stray from your objectives and more likely to make rational decisions.
- Risk Management: A great business plan will make you understand most of the risks before encountering them. By understanding these risks, you’ll be able to mitigate them, developing strategies to either cope with the complications or avoid them in the first place.
- Attract Investors: If you plan on attracting outside investors to complete a project, a well-written business plan can increase your chances of getting the needed finances. It demonstrates your professionalism and ability to create a solid strategy. If you can guarantee them a good ROI, you’ll receive your investment capital.
- Saving Resources: The best business plans won’t use all your money, leaving a small portion as a cushion in case of unforeseen fees or taxes you have to pay. Sometimes, you won’t even have to use those 10% or 15% of your budget. This can significantly raise your profit margin.
Five House-Flipping Mistakes You Must Avoid
Any mistake in house flipping can reduce profit margin. Here are some of the most dire mistakes you should avoid and how to avoid them:
Inadequate Finances
Running out of capital while flipping a house is probably your worst nightmare. Not having the funds to complete the project can lead to a catastrophic decrease in value, meaning your profit margins will decrease.
If you invested your personal savings, it’s okay, you can cope with that. But if you have two or three bank loans or ten business partners, you have to turn a profit or you might face litigation.
Poor Time Management
The longer it takes to complete a project, the more money you lose. While materials and the property have a fixed cost, everything else is a variable. The longer you have a renovating crew on site, the more you’ll have to pay in carrying costs, like taxes, utilities, and fees.
Lack of Experience
Real estate investing is mostly about experience and knowing market trends without doing any research.
Beginners don’t have that advantage because they’ve just entered the flipping business. That’s why you should consider pairing with an experienced real estate agent, at least for your first few flips, to get all the insider tips and tricks of the industry.
Lack of Education
The real estate industry is an ever-changing market that pushes you to adapt and improve daily. Having formal education in business is great, but learning has to be a continuous process.
Read articles and books, listen to podcasts, watch videos and house-flipping shows, and learn from those who are more experienced than you are.
Impatience
You may not be a millionaire after your first fix and flip. Business goals should be set for years ahead, not quarters. If you’re in the flipping business to quickly grab some cash and get out, you’ll probably end up disillusioned and in debt. Be patient, and the life-changing deal will come.
Wrapping Up
Writing a strong and detailed house-flipping business plan should set you up for a successful trade. Starting a fix-and-flip deal without a detailed plan would be considered ill-advised by experienced real estate agents, to say the least.
Hope this article rounded up all the information necessary to start writing your own business plan. Of course, you can also use a house flip calculator, but make sure to use all the data according to the reality of your area.
If you found this guide useful, don’t hesitate to share it with your friends. And if you’ve gone through this before, leave a comment describing your first fix and flip deal!
