Failure to Plan Is a Plan to Fail
June 25, 2018
rving Gilbert, AZ and much of the Phoenix Valley, knows that home rental investment opportunities are abundant right now. But before we get into that, let us tell you a relevant and important story about planning.
In the Italian city of Orvieto, there is a 700-year-old cathedral. It took more than 300 years to build! The first phase in the construction was to plant acorns, which in 100 years, grew into magnificent oak trees, that then became the load-bearing beams for the cathedral. The project continued, being carried on by numerous generations who would not live to see its completion. How did they do it? They had a plan.
Every successful endeavor begins with a plan. In real estate investing, it is no different. If you are interested in creating wealth through owning rental homes that provide you with passive income, you must begin with a business plan. A business plan answers the “What?, Why? and How?” questions, so you have a road map to follow as you pursue your dreams.
Writing a Business Plan
There are a few key elements to include in a business plan. Here are the essentials:
- Mission Statement—Writing a mission statement gives you and others a clear picture of what it is that you want to do. The mission statement defines the essence of your purpose for the business. It should be as focused and concise as you can possibly make it.
- Goals—What do you hope to achieve with this business? If your ultimate goal is to make $100,000 a year in passive income, what are the intermediate goals that will help you to do this? Be sure to include both short and long-term goals.
- Time Frame—We’re guessing you don’t want to wait 300 years to see your investment goals become a reality. In that case, you’ll need to define the time within which it is reasonable to achieve each objective. Perhaps you can earn $2,000 a month for the first five years or so, and then be in a position to acquire more rental properties that will bring in $10,000 a month for the next five years, and so on. The closer you can align with an established timeline, the better your plan will be.
- Market—You need to define the market you are seeking to serve. Are you interested in high-end rentals, or are you more geared toward middle-income tenants? If you’re looking to provide rental housing for short-term tenants, your plan will be different than if you would like to keep tenants for a longer period of time. You need to understand which market you are familiar with and the one you will be able to handle financially.
- Financing—How are you going to pay for your initial real estate investment? If you have cash on hand, no problem; if you need additional funds to finance the project, you need to know such things as the maximum home price you can afford, the maximum amount you will be able to pay back within your timeframe, how much it will cost to rehab the house, and how long before it will be available for rental. This all needs to be stated in your business plan.
- Marketing—How will you handle marketing your rental properties? If you’re not already an experienced real estate marketer, you will need some serious education and/or outside help. You need to state specifically in your business plan what you intend to do in order to market your venture.
- Property Management—Once you have secured your property, how are you going to handle the month-to-month hands-on operations of managing a home rental property? You will need to handle all the legal affairs and regulation compliance, the tenant interactions, rent collection, damage remediation and repairs, etc. Make sure your plan includes how you will handle each of these aspects of property management.
There is Help Available
At Austin Fleck Property Management, serving Gilbert, AZ and the Phoenix Valley, we have helped many first-time rental property owners find their feet on new territory. After you’ve written your business plan, we can give you expert help and advice on solid ways to implement your goals. We’ve walked through the process countless times, and we want you to succeed, as we have. Give us a call when you’re ready to move forward. And please, don’t wait 300 years!