The most important part of starting a new rehab project is having a house flipping business plan!
Before making an offer on a property, you need to understand what your goals are for the project and how you’re going to reach them. Rehabbing and flipping properties needs to be approached from an objective and quantifiable perspective, not an emotional one. As such, a business plan is essential to create a clear path to success.
To make the process as easy as possible, we have created a free house flipping business plan that you can download.
We also encourage you to read the rest of this article to help you understand each part of the house flipping business plan.
Benefits of Writing a House Flipping Business Plan
Writing a house flipping business is important because:
- It will turn your vague ideas into concrete thoughts.
- It will help you to resolve lingering issues that you keep pushing off.
- It will help you to fully understand what you are getting into and how to get out of it.
- It will force you to consider the time, money and emotional commitment needed.
- It will force you to address your tolerance for risk.
- It will make you think about your own strengths and weaknesses and identify areas where you may need assistance.
- It will show people who are working with you (lenders, lawyers, contractors, etc.) that you are serious about the project.
- It will improve your chances of getting approved for a loan.
House Flipping Business Plan Outline
Now that you know why you should create a house flipping business plan, let’s jump into what a business plan actually looks like.
Our free house flipping business plan template includes the following topics:
- Executive Summary
- Mission Statement
- Market Analysis
- Strategy, Timing, and Financial Projections
- Team Description
- Exit Strategies and Backup Plans
What are you doing?
The executive summary is the elevator pitch version of your business plan. It should briefly cover all of the topics covered in the business plan, starting with your mission statement and a brief overview of the project goals.
If someone only has time to read one page of your house flipping business plan, this will be it. They should gain a basic understanding of the whole project, your ideals and what you bring to the table. It’s often easiest to write this piece last after all of your ideas from the other sections are established.
Why are you embarking on this business venture?
The mission statement is a one to three sentence synopsis of your project objectives and the underlying philosophies behind them. This statement says a lot about your central ideals and business culture, and it is very important when laying the foundations for your project.
When writing your mission statement, cut the jargon! Make it clear, concise and useful.
Comparative Market Analysis
What is the economic environment surrounding your project?
A comparative market analysis, commonly referred to as a CMA, is a tool you can use to determine the value of your property by comparing it to similar homes nearby.
Read more about how to prepare your own CMA in our Real Estate Strategy section.
Understanding the neighborhood where you are buying is essential to your success. Only when you have done your own due diligence can you be sure that you are getting a good deal. In the end, your thoughtful planning should be rewarded with moving forward on a successful project.
Sites such as realtor.com, zillow.com, and trulia.com are all free sites that can give you information on the property to be purchased and neighborhood value. These sites can show you the selling prices of nearby homes and the characteristics of the home (bedrooms, bathrooms, square footage, lot size, etc.), allowing comparisons to be made between properties. These sites will also show you what is for sale in the neighborhood, so you will know what the competition is in the local market. In addition, you should go to as many open houses in the neighborhood as possible to get a real sense of size, finishes, configurations, etc.
Below is a list of ways to better understand the market you want to buy in:
- Work with a realtor to help you identify properties
- Join real estate investment groups to get education
- Align with a wholesaler
- Find lists on the Internet
- Review foreclosure sale lists
All of these tools may help you identify your best opportunities, but you must do the work yourself, and not rely on what others tell you.
Once you do your due diligence, be sure you describe your research and rationale within your business plan. Write this section as an organized series of data points that explain the decisions that you are making with the choice of house and rehabbing decisions.
The goal of this section is to show a third party reader where the property and project fit in the current economic and regional real estate markets.
How long will your project take?
Now that you’ve outlined your executive summary, mission and market analysis, you’ll want to develop a timeframe for your rehab project.
Keep in mind that rehabbing and flipping always takes longer and costs more than you think it will. Make a timeline that is realistic, and then add additional time to it to cover inevitable unexpected delays.
Next, “cost out” each month on your timeline being as detailed as possible.
Consider the following questions when costing out your timeline:
- How much will you need to pay on the loan you have for the property?
- How much are insurance and taxes monthly?
- How much will you need to pay your contractor?
- How much are the monthly utility bills going to be?
To read more about developing a project timeline, read Chapter 4, “Develop a Property Investment Plan and Timeline.”
How much will it cost? Where will the time & money go?
After you determine how long your flipping project will take, you will need to show a budget and financial projection. The financial projection takes into account both time and money. This is one of the most important sections of the business plan.
Here are a few costs to include in your budget:
- Cost of the property
- Expected rehab costs
- Other expenses like marketing costs to sell the property
- Additional contingency expenses
Add all of these costs to get a total investment number.
Then, provide a realistic, supportable value for the sale of the property and deduct liquidation costs, such as realtor fees, transfer taxes, etc. to project your expected profit on the property.
Use our House Flipping Calculator to help calculate a cost breakdown for your project, and then include these details in your business plan. This will not only help you identify potential budget challenges, but also show people you are working with that you’ve strategically thought through your budget!
Pro tip: Make sure that your numbers are realistic, and do not rely on everything going right.
After identifying all of the costs to buy a home, and how long it will take to actually complete the rehab, you should be able to fully project your cash flow through the duration of the project. This financial projection will help you understand how much cash is necessary to keep your project moving forward.
How do you plan to fund your project?
This section of the business plan should identify all of the sources of your start-up capital for your rehab project.
To put it simply: Where will you get the money to flip a house?
There are numerous house flipping funding options, including:
- All Cash
- Conventional Mortgage
- Government Insured Loans
- Owner Financing
- Hard Money
- Private Money
Keep in mind that your source of funding will have an impact on your timeline, costs and overall budget.
In the world of real estate investing, an all-cash offer is always preferred over an offer from someone with financing contingencies. Financing your project with your own cash is a good option if you don’t want to be in debt to an institution. However, most house flippers cannot afford to flip a house without financial help. It’s important to do your research about each type of funding listed above to compare the short and long term costs of each option.
To learn more about these six types of funding, check out the Chapter 3 article, “Getting Rehab Funding Right.”
If you want to get funding from a lender, watch the video below, where Rehab Financial’s President, Susan Naftulin, offers key tips to help you get approved by a lender.
Once you choose a source of funding, clearly explain which financial assistance you intend to use in your house flipping business plan, if you are going to get pre-approved, and how far in advance you plan to get pre-approved.
Personal and Team Description
How is your organization structured? Are you building a team or taking on responsibilities yourself?
Now, you need to decide how you want to be organized.
Do you want to borrow in your own name as a sole proprietor? Or, do you want to form a partnership, corporation, limited liability company?
Read more about the best business structures for real estate investors in our Real Estate Strategy section.
You may need to seek the advice of an attorney or accountant to fully understand the implications of each organization type. Be careful about this choice, because your selection can affect your ability to borrow money, mitigate your risk, attract investors, etc.
This section of the business plan is where you should talk about yourself. Include a brief bio, relevant experience and unique skills that will be advantageous to your company.
If you are working with a house flipping team, include who these people are, and why you chose to work with them. Make sure that the reader understands what you are doing and how the team you are working with will contribute to a successful rehab project.
Exit Strategies and Backup Plans
How are you getting out of the investment? Do you have contingencies in place in case of unforeseen circumstances?
Finally, your house flipping business plan needs to address your exit strategy. Essentially, an exit strategy is how a house flipper plans to do with their property once the rehab is complete.
You also need to address contingencies in case the project doesn’t go as planned.
Below are a few examples of common scenarios where you’ll need to explain your contingency plans.
Scenario 1: What will you do if your property does not sell? Will you use it as a rental?
If so, you should show that the rental will pay the carrying expenses of the building.
Scenario 2: Do you plan to refinance the property and hold it as a rental?
If so, show your plans for refinancing it, but also show what you will do if you cannot obtain the needed credit.
Scenario 3: Will you sell the property?
If so, state how much you plan to sell it for. In addition, you will also need to know the rules related to your exit strategy.
Scenario 4: Do you plan to sell to an FHA buyer?
If so, make sure you understand the anti-flipping regulations to make sure you aren’t trying to sell too soon. Generally, you will need to hold the property for more than 90 days in an FHA situation.
Why a House Flipping Business Plan is Crucial
A thorough, well-written business plan can be an invaluable tool in helping you meet your house flipping goals. Time spent on planning at the beginning of the process will save you immeasurable time, money and worry during the process.