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About 245,000 homes were flipped in 2019, which was the highest in eight years. Even though house flipping increased, the profitability of these transactions declined.
Do you see house flipping as a potential business? It can be rewarding, but you need to make sure you have a profitable business. That starts by creating a house flipping business plan.
Keep reading to learn why you need one and how to create your own business plan for your house flipping business.
Do You Need a House Flipping Business Plan?
Is house flipping an expensive hobby or a business? Your answer will determine your need to have a solid business plan.
A business plan is necessary if you plan to get outside financing for the business. It will show that you’ve done the work to understand the risks and challenges of the business. That will give them the confidence to invest in your project.
The business goals are pretty simple statements that tell people (and yourself) how you’ll define a successful house flipping business.
Your goals should be measurable and define the first three years of the business.
Lead Generation Plan
A traditional business would need to find customers to buy from them. You need to find houses to flip. Your lead generation plan outlines how you will find these homes.
You can list the places where you’ll go to find homes, whether that’s through your personal network or websites. You’ll also want to list criteria for a home, such as the sales price, location, renovations, and profitability.
This part of the plan talks about the real estate market in your area. You may use this section to include competitive market analysis (CMA) for a home.
A CMA will examine the sales prices of other comparable homes in the area. You should learn which neighborhoods and school districts are in demand.
When you’re doing a market analysis, you should come up with your target audience. The target audience is likely to purchase the home. You also want to know what features buyers are looking for.
Investment and Financing
You have the perfect home to flip. You have to figure out how you’ll finance the deal. Will you use your own funds or get a mortgage? You want to make sure that you can put at least 20% down to avoid PMI.
If you plan to get fix and flip loans, you would mention that in this part of the business plan.
Sales & Marketing Plan
Marketing the home for resale is going to be important. You should list the ways you plan to market the home when it’s ready to be sold.
You can mention your real estate networks, websites, and open houses. Include data that shows why your marketing methods will be successful.
Investors and lenders want to know who they do business with. In this section of the house flipping business plan, you’ll talk about your background and business experience.
You don’t need to have direct real estate experience, but you can leverage your previous business experience. Your background may be in marketing, and you can turn that into an advantage. Your marketing skills will come in handy as you promote your properties and sell them.
Accounting or bookkeeping experience can be useful. It’s important to stay on budget and manage your finances. You’ll also understand the tax implications of selling a property or using a 1031 exchange.
If you have existing partnerships with contractors, real estate agents, accountants, attorneys, and inspectors, you should mention them in this section. It will give lenders confidence that you’re not only relying on your expertise to run the business.
Investors will want to know one thing. When can they cash out and make money? This is called the exit strategy.
You generally have a couple of options to make money on a house flip. The first is to sell the home after renovations for a sizable profit. The second way is to rent the property out and earn passive income.
Investors will want to know what happens if you can’t sell the property at a profit. Will you hold the property until the market rebounds? You may decide to rent if it’s a renter’s market instead.
Your business plan starts with the executive summary. It should be the last section you write because it sums up all of the other sections of your business plan.
The executive summary should address the goals of the business, your experience, and provide a brief look at the business.
The executive summary can be tailored to different audiences. You should consider this step because investors and lenders may decide to work with you based on this section alone.
Get Feedback and Revise
Before you take your business plan around to banks and investors, you want to make sure that your business plan is sound. It would be wise to take your business plan to other people in the real estate business for feedback.
Of course, you want to make sure you trust the people that you take your business plan to. That will ensure that your business remains your business and you don’t lose a competitive edge.
Take the feedback you get from your trusted advisors and revise your business plan accordingly.
A House Flipping Business Plan for a Successful Business
If you’re going to take the time to build a house flipping business, you need to have a house flipping business plan. It’s an essential document that will help you see every facet of your business before you start.
You’ll have clear goals, know the real estate market, know the risks, and plan to overcome them. The business plan will serve as your working document as you move forward and get financing.
Hopefully, you found this helpful and you’re ready to start your house flipping business. If you want more great business tips, check out the Real Estate Investment section of this site.