Do you need a real estate development business plan? You will if you want to obtain financing for your project. The first thing any lender or private investor will want to see is your real estate development business plan. This plan is specific for development of real estate. Your business plan will tell your story in an organized and concise manner. It will provide all of the critical information needed to judge your project. A well-written and professional looking business plan is crucial for your success in obtaining financing.
Most real estate developers make the mistake of not creating a good business plan or even getting professional assistance in developing their business plan. They will use the excuse of not having enough time or they can not find the data. Do not let that be your excuse! All a real estate development business plan really is, is the answers to a bunch of questions! You will learn what to include in your real estate development business plan.
The Executive Summary should provide a complete overview of your project & company. This will include:
- Brief description of the overall project. For example, develop a 4 star, 250 room luxury hotel in downtown St. Louis. Louis, Missouri.
- Brief overview of the company – Is it a corporation, LLC, etc? Who are the owners and / or board members? Brief company history & experience level.
- Brief summary of the market & demand. How large is the market and at what stage of development is the market currently in?
- Brief summary of the competition and what separates you from them?
- Brief description of key Management team members.
- Key financials – total acquisition & construction costs, nature & use of funds, future revenue & expenses.
The Executive Summary should be brief and an outline to your overall business plan. Now lets take a look at the specifics in the real estate development business plan.
This part of the business plan should give full details about how and when the company was formed. It should indicate the legal structure of the company, as well as where it is licensed. A key piece of information about the company is the company owners. Name all of the principals and their percentage of ownership.
This section of the plan is where you explain your project in detail. Remember, you are selling your project so that you can get the funding you need! Is this a hotel development project? Is this a luxury, single-family home community project? Is this a multi-tenant shopping center? Give all the details about the project. For instance, lets continue with our hotel example. You will want to name the other amenities that will be located at the hotel, such as swimming pool, tennis courts, the number of conference rooms, etc. How many rooms will be suites? What other features & benefits will your project have?
You will also want to address where you currently are in the project. Has the land been purchased or opted? Where are you in the permitting process? Has the architecture plans been drawn? How much time & capital has been spent on your project to date?
In this section you will provide the market type & size, current & potential growth rate, and relative stage of development of the area. You should also address why you chose this particular area. You should discuss any upcoming changes in the market, government regulations, economy, and short-term & long-term trends. If you have performed any feasibilities studies, you will want to include it as well as the source of the feasibility study.
The Marketing Plan
The main objective of any developer is to sell the homes, the stores or the hotel. And this can only be accomplished with a well thought out marketing plan. Who will handle your sales efforts? Will they be in-house or out-sourced? How will the pricing / leasing / room rate be determined? Will there be any brand or strategic partners involved? What is your marketing budget (in a table format).
Any lender or investor in your project will want to feel comfortable that you know who your major competitors are. They will want to know that you have done a thorough competitive analysis. Name and describe all key competitors. What are their strengths & weaknesses? How will your project compare? What are your projects strengths & weaknesses?
The Management Team
In this section, you will want to go into further detail about the principals involved. You will need to highlight the team's relevant experience and previous successful projects?
Well what if this is your first project?
Then you want to make sure that you have an excellent support team in place. These team members should have the experience that you are lacking (team members does not necessarily mean company ownership). These team members can be legal, accounting, construction, architecture, etc. So for this section of the real estate development business plan, you will want to include:
- Resumes / biographies on all principals & management team members
- Organizational chart
- Board of Directors
Since the primary objective of your business plan is to obtain financing, you will want to address what type of financing you are seeking and how much capital is needed. You will want to state how much money you have on hand (and where did you get it from) and how much money you have spent to date.
Everything that you have put into your real estate development business plan up to now should support your financial liabilities and projections. You will want to include a statement that shows a breakdown of construction and acquisition costs. You will want to include an Income statement that will outline income and expenses for the next five years after construction. It should follow GAAP (Generally Accepted Accounting Principles) and contain specific revenue & expense categories. You will want to include a Balance Sheet and Cash Flow Analysis.
Now that you know what to include in your real estate development business plan, make sure that your business plan presents itself in a professional manner.
- Use a table of contents, with numbered pages.
- Make sure that the writing style is simple and conversational.
- Do not use long or complex sentences.
- Paragraphs should be short & simple.
- Use graphics & pictures but do not get carried away.
- Use charts & tables to back up your data.
- State all sources of your data and studies.
- Proofread your real estate development business plan for grammatical and spelling errors.
- Have someone else proofread it for you.
- If you have the resources, hire a professional business plan writer.