FUF Business Plan

The 7-Step Real Estate Rehabbing Business Plan “How to create a winning blueprint for your rehab business success in 7 easy steps” By Sal Vannutini www.fastfixerupperprofits.com Copyright Karsal Pty Ltd 2004. All Rights Reserved. Copyright Notices Copyright 2004 Karsal Pty Ltd & Fixer Upper Fortunes. All rights reserved. International and Federal copyright laws protect the contents of this book. Any unauthorized copy or use of this material is subject to prosecution under applicable laws. Apart from any fair dealing for the purposes of study, research, criticism or review, as permitted under the Copyright Laws, no part of this publication may be reproduced by any process or means whatsoever without permission of the author. Legal Notices Whilst all attempts have been made to verify the accuracy of the information provided, neither the Author, Publisher nor Distributor of this publication make any representation as to the accuracy or completeness of the material contained herein nor the results obtained from the application of this material. The information contained herein is not intended as nor should be interpreted as specific or general investment advice whatsoever. Each person’s results and outcomes will vary according to their experience and their use of this information. The Author and Publisher do not express nor imply any guarantees as to the profitability of the strategies contained in this publication, and will not be liable in any way for any loss or damages incurred as a result of the information contained in this publication. The reader and purchaser of this product assume absolute responsibility for the use of the material and information. Investment, taxation and real estate laws vary from country to country, state to state, and are constantly changing. It is strongly recommended that readers become familiar with the variations in local laws, and should always consult a professional real estate attorney or taxation professional to answer specific questions regarding their personal situation. Introduction The Fixer-Upper Fortunes Real Estate Business Plan workbook provides you with a simple step-by-step, structure and template for designing your real estate business plan, and to ultimately create a successful renovation business. It is designed for both new and established investors alike who want to run a professional business. The process of writing and thinking through your business requirements is as important as the final business plan document. Why you need to write a business plan 1. To provide a road map: Your business plan helps you to create your very own “big picture” so that you not only know where you are going, but also how you will get there. 2. To create a feasibility study: A good plan allows you to recognise how realistic your ambitions are, and if they are a realistic proposition. For example, you may wish to flip 10 rehabbers in your first year. But how will you do it? Through writing your plan you may discover that due to time or financial restraints, only 3 may be possible. 3. You will always make informed decisions: Through careful research of your business requirements, you will become aware of potential obstacles. Your plan will also include how you will deal with these obstacles should they arise in the future, without make a serious mistake. 4. To help you face the reality of your business: Once you start answering the questions in the template, you will become better informed on what is required, what can go wrong, and identify your strengths and weaknesses. 5. To measure your progress: Your plan will contain profit projections as well as other targets. By doing this, you can compare your results if required and adjust your plan as necessary. 6. To attract investors: If you ever require partners to provide capital, you will need to be able to present them with a compelling reason as to why they should hand over their money. A good plan shows that you are a professional, and know exactly what you are doing. How to use this workbook The workbook is structured in 2 parts. In the first part you will find a series of questions regarding the various elements of your plan. To help you along, I have included some sample answers to give you an indication of the information required. I suggest that you read through this section first, then go away for a while and give some thought to what you would do. Remember that this plan does not have to be anything fancy to start with. By all means keep it simple, and you can always polish it up further down the track. There is no point spending months trying to write the perfect plan, only to let lucrative opportunities pass you by. Your best bet is to handle it section at a time, then move onto the next section. The object is to get you thinking about what it is that you will actually do, and how to do it. Once you have researched your plan, you should print off copies of the template pages and write in your answers (when starting, you will probably need 3 or 4 copies just in case). Ok, so now you have your draft ready. The final step is to have it professionally typed, and there you have it! Working template Part 1 The following template will walk you through my 7 Step plan by asking you the relevant questions for each of the 7 sections. I have provided you with sample answers to each question to help you along. The executive summary is an introduction that sums up who you are, what your business is, and how the business operates. Step 1: The Executive Summary (draft). The Executive summary is made up of 5 parts… I. BUSINESS OVERVIEW: Q - What business are you in, when did you commence, and where are you located? Sal’s Rehab Inc was established in July 2001 to invest in homes that require fixing up. Sal’s Rehab Inc is located at 123 Rundown Street, Profitville. II. BUSINESS OBJECTIVES: Q - What is the purpose of your business? Sal’s Rehab Inc purchases old homes in Profitville and surrounding neighbourhoods. We only target homes that can be purchased at wholesale price, so that we can renovate them and sell them at full retail price. III. TARGET MARKET: Q - Who is your target market? Our target market is family homebuyers looking for a ready to move into home at an affordable price. Therefore, we will only target homes in low to middle income areas. IV. MANAGEMENT TEAM: Q - How is involved with the running of the business? Sal’s Rehab Inc is solely owned by Sal Vannutini. We also employ a full time researcher and accounts department. V. FINANCIAL STATEMENT: Q - How much working capital do you have? Sal’s Rehab Inc has a start-up fund of $50,000 and will acquire further funding through private lenders. Step 2: Target Market Analysis (draft): The Target Market Analysis section of your plan gives an in depth overview of the market you intend to work in. It is critical that you have researched you market in order to complete this section. I. MARKET SUMMARY: Q - What type of market will you be operating in? Sal’s Rehab Inc will invest in low to middle income areas where there is a proven demand for family homes. The neighborhoods will also be well established with education and recreational amenities nearby. The home will be renovated to match or exceed similar standards within the neighborhood to ensure strong buyer demand. II. MARKET STRATEGY: Q - Who will be the end buyer of your product? The homes we acquire will be marketed to first homebuyers upgrading from apartments. Accordingly, the level of renovation will reflect the requirements of these buyers. Step 3: Operational Plan (Draft): The operational plan covers how you will run your real estate business. This section should include topics such as purchase / acquisition strategy; project costing formula; and the rehab process. Simply, it identifies all operational aspects of your business and defines how these tasks will be completed. I. ACQUISITION STRATEGY: Q - How will you set about finding and purchasing homes? Our underlying principle is to only negotiate with motivated sellers so that we can negotiate the best possible price and terms. We will also form alliances with real estate agents who specialise in fixeruppers, as well as putting a direct prospecting system into place so that homeowners will call us directly when they decide to sell. As the business grows, we will employ scouts to find the deals for us, whilst we concentrate on the negotiation phase. II. PURCHASE PRICE CALCULATION: Q - What formula will you adopt to calculate your purchase price? Sal’s Rehab Inc will adopt the following formulae to calculate the maximum purchase price. We do this so that we lock in our profits from the very beginning and therefore greatly reduce our risk exposure. Price Calculation Formula: Estimated retail value of renovated home LessRehab costs Closing costs (Legal, loan etc) Selling costs Holding costs Taxes/ Insurance Profit Margin Sundry expenses (hidden surprises) @ 5% of value TOTAL = Our maximum purchase price. III. REHAB PLAN: Q - How will you carry out the rehab work? After removing and unwanted items, our first step will be to start on the external improvements and to quickly increase the “curb appeal” of the home. We do this so that we can begin to attract potential buyers. Internally, we systematically strip, repair and prepare all surfaces and complete any required electrical and plumbing repairs. Our next step is to renovate the kitchen and bathrooms. Once the major work is completed, we then paint the home internally, refurbish the floors, and update window furnishings and other cosmetic items. Step 4: Sales plan (Draft): As the name suggests, this part of your plan explains what you will do with the home(s) once you have purchased and renovated them. Unless you are in a position to hold every project, you may need to sell off a few in order to build your cash reserves. Therefore I have covered both scenarios. I. SALES PROJECTION: Q - How many will you sell or hold? Initially, Sal’s Rehab Inc intends to sell each project in order to raise capital reserves. Once the business is “self funding” and we do not require lending, we will hold 1 out of every 5 projects as long-term investments. We will still require selling the other 4 so as to provide an income stream to replace our job income. II. SALES STRATEGY: Q - What sales methods will you employ to sell the home? Sal’s Rehab Inc is committed to the concept of time leverage. Therefore we do not wish to spend our time selling homes in order to save on commission. Our price calculation formula allows for this contingency, so that the selling costs associated with real estate agents will not impact on our profit margin. Agents will only be employed to sell once the project is completed. Prior to this, we will advertise for buyers once the exterior improvements are complete. This advertising will target the “Rent to Buy” purchasers using a lease option strategy. However, this method of selling will only be used when we have sufficient capital and can afford to hold the home for 3-5 years. Step 5: Profit Plan (Draft): The Profit Plan enables you to work out exactly how much you will make per deal. This in turn lets you create your “blueprint” for growth and cash flow. Setting a minimum profit target per deal is vital to the longterm success of your business. Therefore any deal that won’t allow this to happen should be passed up. I. MINIMUM PROFIT TARGET: Q - How much profit do you wish to make on each deal? Our minimum profit target is to make $25,000 on each deal. This will allow for variations in market conditions, and still allow us to make a reasonable profit should events not go 100% to plan. In order to make each project worth our time and effort, we will not enter into any deal where this minimum target cannot be achieved. II. PROFIT PROJECTION: Q - How much profit do you intend to make on the short to medium term? Our initial target is to complete 3 projects for 2004, and increase our output to 5 for 2005, and 7 for 2006 where we will then adopt the strategy of holding 2 and selling 5. Our profit projections are as follows: 2004 - $75,000 2005 - $125,000 2006 - $125,000 Step 6: Financial plan (Draft): Your Financial Plan contains the details of how much money you have to start with, how will you fund the projects; and a Balance Sheet for your business. A balance sheet is essentially a list of what you own versus what you owe. It needs to be included for the purposes of borrowing money. Note: You will need to talk your accountant to have a balance sheet made up. Therefore I have not included one in the sample. I. START UP CAPITAL: Q - How much cash do you have available to fund the business? Sal’s Rehab Inc has a start up fund of $20,000. This will be used to cover the first down payment, and purchase costs. II. ONGOING FUNDING: Q - How will you fund the purchase and renovation expenses, as well as the loan amount? We have secured an Equity Line of Credit facility using our own home as collateral. This loan facility has a limit of $150,000. Once the business is self-funding, we will no longer require this loan facility. III. BALANCE SHEET: Q - What do you own? What do you owe? Insert Balance Sheet here. Step 7: Management Summary (Draft): The final step to creating your ultimate rehab business plan is to specify who will be involved in the day-to-day running of the business. I. MANAGEMENT TEAM: Q - Who will run the business? What are their roles? Sal’s Rehab Inc is owned by Sal Vannutini who is the CEO. His responsibility is to research, find and negotiate the purchase of real estate projects. Karmen Vannutini is responsible for the project management and coordination of the renovation work. So, there you have folks, in a nutshell. How to create your very own real estate rehab business plan in 7 easy steps. Your next step is to print off the following pages of this workbook and I suggest that you make several copies (just in case). Once you have considered and answered the questions, you can then compile and have your plan re-typed to give it a professional look and feel. Step 1: The Executive Summary The Executive summary is made up of 5 parts… I. BUSINESS OVERVIEW: Q - What business are you in, when did you commence, and where are you located? II. BUSINESS OBJECTIVES: Q - What is the purpose of your business? III. TARGET MARKET: Q - Who is your target market? IV. MANAGEMENT TEAM: Q - How is involved with the running of the business? V. FINANCIAL STATEMENT: Q - How much working capital do you have? Step 2: Target Market Analysis: I. MARKET SUMMARY: Q - What type of market will you be operating in? II. MARKET STRATEGY: Q - Who will be the end buyer of your product? Step 3: Operational Plan: I. ACQUISITION STRATEGY: Q - How will you set about finding and purchasing homes? II. PURCHASE PRICE CALCULATION: Q - What formula will you adopt to calculate your purchase price? III. REHAB PLAN: Q - How will you carry out the rehab work? Step 4: Sales plan: I. SALES PROJECTION: Q - How many will you sell or hold? II. SALES STRATEGY: Q - What sales methods will you employ to sell the home? Step 5: Profit Plan (Draft): I. MINIMUM PROFIT TARGET: Q - How much profit do you wish to make on each deal? II. PROFIT PROJECTION: Q - How much profit do you intend to make on the short to medium term? Step 6: Financial plan (Draft): I. START UP CAPITAL: Q - How much cash do you have available to fund the business? II. ONGOING FUNDING: Q - How will you fund the purchase and renovation expenses, as well as the loan amount? III. BALANCE SHEET: Q - What do you own? What do you owe? Insert Balance Sheet here. Step 7: Management Summary: I. MANAGEMENT TEAM: Q - Who will run the business? What are their roles?