Creating a House Flipping Business Plan
Having a business plan is one of the most important tools when learning how to get started flipping houses. You should have one created and finalized before you start any project. To make the process of creating one even easier, we have created a free and editable house flipping business plan template.
A house flipping business plan will force you to clearly develop your goals, maintain focus and map out your steps. The purpose of the plan is not to get to the end, but instead, it’s to think through the process, research what you do not know and look at your own ideas and assumptions critically.
The business plan should contain narrative sections and financial worksheets, in a logical order.
Here is a guide to developing a customized house flipping business plan.
Sum up everything you have in the business plan.
The executive summary should be the first page of your house flipping business plan, but you should write it last.
This is a summary of everything you have included in the plan. It should reflect what you would say if you were asked to describe your business in five minutes.
If you are using this to secure a loan, you need to be clear with how much you are asking for, how it will be spent, how it will lead to a profitable project and how the lender will be repaid. Include realistic dollar amounts and timelines.
General Company Description
What is your business and its purpose? What is your mission statement?
This is the section where you should fully describe your business and its purpose. To do this, you should develop a mission statement that explains the company’s guiding principles.
After you complete a mission statement, you need to set your company goals and objectives.
Goals should include how you want your company to progress and how large you want it to grow in personnel, volume and geography.
Objectives are the measurable achievement markers that will help you achieve your goals. Objectives might include how many flips you want to do in consecutive years or what you want your personnel structure to look like in the next year.
The next section should describe the house flipping business in your area. Explain why there is an opportunity for your business at this time. Discuss both the short term and long term shifts in the market and how your company will be poised to react and take advantage of them.
While describing this, discuss your company’s core strengths and your competitive advantages.
The last part of this section should discuss your legal form of ownership. Establish whether you intend to be a sole proprietor, limited liability company or corporation. You should make this decision after consulting with your attorney or accountant. Explain why this legal form is the best choice for you.
Financials of the Deal and Timeline
What are your costs going to be? How will your flip make money?
This part of the business plan is where you show your math and the project’s return on investment.
Start with your purchase price, either actual or projected, and add all of the expenses you may have, including, but not limited to:
- Cost of rehab, be sure to include a timeline for each major category
- Closing costs on the loan
- Property taxes
- Utility Bills
- Lawn care/snow removal
You will need to generously estimate the amount of time the project will take and the amount of time needed to close on the sale of the property.
Once you have all of the potential costs totaled, subtract them from the estimated after repair value of the property. This will indicate your potential profit. Be conservative when you estimate your after repair value. When you have a number, think about whether it’s enough to make the project worthwhile.
Do not go back and change the numbers to get a larger profit without a valid reason. Just because you wish for a profit does not make it real. You may find that you need to look at several properties before getting a profit number that you are comfortable with.
Describe Potential Problems and How You Will React to Them
What are weaknesses? How will you overcome them?
What are the risks involved in your project and how will you either avoid them, or deal with them if they occur?
Describe your own weaknesses and how you will compensate for them. Lay out a contingency plan for emergencies. This section should include how you will manage the timeline if you get behind schedule, cash reserves for unanticipated problems and what you plan to do if the property does not sell.
Describe Your Team
Who is on your house flipping team? How are they qualified?
In this section of the business plan you should talk about people involved in your project. Describe your qualifications, your contractor, accountant, attorney, realtor or anyone else involved in the project.
Their backgrounds should be provided, as well as what they specifically bring to the project. Their skills should compensate for any weaknesses that other team members might have, leading to a strong, dynamic team.
Discuss Your Exit Strategy
How much are you going to sell the property for? What are you going to do to sell the property?
What price are you hoping to sell the property for? Discuss the comparables in the area that have lead you to this listing price.
You should talk about the tools your realtor will use to sell the property. Are you going to wait until it is finished, or market it during the construction to allow the buyer to pick certain finishes?
You should also consider how long you anticipate that it will take to sell? Your realtor should be able to assist you with these details.
Include Personal Financial Statements
What is your financial history?
You should be prepared to provide personal financial statements for yourself and anyone within a position of ownership in the company. You need to be willing to divulge your income, investments and credit history in order to secure financing for your project.
Writing this plan, step by step, and really thinking through your plan can help you get financing and achieve your goals. You need clear thought, planning and reflection to become a successful real estate flipper.
For more information on house flipping business plans, read the “How to Write a House Flipping Business Plan”