Success in apartment investing requires a great deal of personal involvement and research, so if you want to have a chance of succeeding, creating a detailed business plan is critical. Regardless of your potential investment’s size, a business plan is useful for establishing goals, as well as bringing potential hurdles to your attention.
Sometimes business plans are required if you are planning on purchasing multiple properties or need to bring in business partners or outside investors. And, if you already have invested in multifamily properties and are seeking to upgrade, refinance, or improve profitability having a good business plan is equally important.
What are the Key Components of an Apartment Investing Plan?
It may be beneficial to have a specific business plan for each property you obtain, depending on the nature of your investment goals. Here are important few aspects to consider incorporating into your business plan.
Mission Statement & Investment Strategy
Every plan needs a good mission statement. Start off by summarizing the type of property you will invest in and your plan to make it profitable. This is a big picture view, and can also detail your plans for financing, property management, exit strategies, and other important items, which you can elaborate on later on in the plan.
Consider Your Target Market
It’s important to hone in on a target market (or markets).
Do your research by contemplating questions like:
- What markets should I invest in? What submarkets?
- What are the best neighborhoods to invest in for my chosen locations?
- Who is our ideal customer? How old are they? What do they look for in a place to rent?
Since the real estate world if ripe with options, it’s beneficial to focus on a particular area of specialization. For example, you may become experienced in buying, holding, and renting small, one and two-bedroom apartment buildings in a certain area of town. Each geographic area has its own unique dynamic, zoning regulations, and its own distinctive resident persona.
As an example, your plan could state “We will be investing in a property in the Boston, Massachusetts market, specifically in the Beacon Hill neighborhood” Our target demographic will be young professionals and middle-aged couples making between 70,000 and 120,000 per year.
Property management is another critical aspect of the apartment investing journey. Some investors will take care of this themselves when dealing with very small properties; yet, most investors hire an extended property management company to take care of this. Your business plan should lay out which of these options will be used and how much property management is expected to cost.
For good reason, financing an apartment investment is a major concern for investing beginners. If you intend on creating a good financing plan, you first need to assess where you stand financially today. Consider questions like “how much cash do you have?” or “do you have any equity that you can tap into?” You may be capable of buying your first investment property with cash, or you may need to consider alternative financing options. Your real estate investing business plan should clarify the exact model of financing.
In other words, the property financing section should describe how you will finance your property using debt and equity. Equity includes all sources of cash that will be used to finance the property, and should include details any GP/LP investments and/or joint ventures that are planned. In terms of debt, details could include the amount and type(s) of debt that an investor plans to use on the property, the anticipated LTV, and the expected interest rate of the debt.
Flexibility is Critical
Here’s a truth that’s stood the test of time: Markets change. Based that, lenders often change requirements, and service providers frequently adjust their costs— your apartment investing business plan should reflect that. Having a business plan in place is great, but remember, it’s just a template to get started and guide you throughout the process, while not letting it restrict your choices.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners throughout the country. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. If you are investor looking for financing for apartment investing, RCN Capital has competitive loan options available. Connect with us today to schedule a consultation.