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 look at is your real estate development business plan. This plan is specific to real estate development. Your business plan will tell your story in an organized and concise way. It will provide all the critical information needed to judge your project. A well-written, professional-looking business plan is crucial to 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 that they don’t have enough time or can’t find the data. Don’t let that be your excuse! All a real estate development business plan really is is the answer to a bunch of questions! You will learn what to include in your real estate development business plan.
Executive Summary
The executive summary should provide a complete description of your project and company. This will include:
- Brief description of the general project. For example, develop a 250-room, 4-star luxury hotel in downtown St. Louis, Missouri.
- Brief company overview – Is it a corporation, LLC, etc.? Who are the owners and/or board members? Brief history of the company and level of experience.
- Brief summary of the market and demand.How big is the market and what stage of development is it currently in?
- Brief summary of the competition and what separates you from them?
- Brief description of the key members of the management team.
- key finance – total acquisition and construction costs, nature and use of funds, future income and expenses.
The executive summary should be short and a summary of your overall business plan. Now let’s take a look at the details in the real estate development business plan.
The company
This part of the business plan should provide complete details about how and when the business was formed. You must indicate the legal structure of the company, as well as where it is licensed. A key piece of information about the company is the owners of the company. Name all the principals and their ownership percentage.
Project description
This section of the plan is where you explain your project in detail. Remember that you are selling your project in order to get the financing you need! Is this a hotel development project? Is this a luxury single family home community project? Is this a multi-tenant mall? Give all the details about the project. For example, let’s continue with our hotel example. You will want to name the other amenities that will be located in the hotel, such as the pool, tennis courts, number of conference rooms, etc. How many of the rooms will be suites? What other features and benefits will your project have?
You’ll also want to address where you currently are in the project. Has the land been purchased or opted for? Where are you in the permitting process? Have the architectural plans been drawn up? How much time and capital have been invested in your project to date?
The market
In this section, you will provide the type and size of the market, the current and potential growth rate, and the 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, the economy, and short- and long-term trends. If you have done any feasibility studies, you will want to include that as well as the source of the feasibility study.
The Marketing Plan
The main objective of any promoter is to sell homes, premises or the hotel. And this can only be achieved with a well thought out marketing plan. Who will manage your sales efforts? Will they be in-house or outsourced? How will the price/lease/room rate be determined? Will there be any brands or strategic alliances involved? What is your marketing budget (in table format).
competition
Any lender or investor in your project will want to feel comfortable knowing who your main competitors are. They will want to know that you have done a thorough competitive analysis. Name and describe all key competitors. What are your strengths and weaknesses? How will your project compare? What are the strengths and weaknesses of your projects?
The management team
In this section, you’ll want to go into more detail about the main players involved. Will you need to highlight relevant team experience and previous successful projects?
Well, what if this is your first project?
Then you’ll want to make sure you have a great support team. These team members should have the experience you lack (team members do not necessarily mean business owners). 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 of all directors and members of the management team
- Organization chart
- Board of Directors
the finances
Since the main goal 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 need to indicate how much money you have available (and where you got it from) and how much money you have spent to date.
Everything you’ve put into your real estate development business plan so far should support your financial assumptions and projections. You will need to include a statement showing a breakdown of construction and acquisition costs. You’ll want to include an income statement that outlines your income and expenses for the next five years after construction. It must follow GAAP (generally accepted accounting principles) and contain specific categories of income and expenses. You will want to include a Balance Sheet and a Cash Flow Analysis.
Now that you know what to include in your real estate development business plan, make sure your business plan is presented in a professional manner.
- Use a table of contents, with numbered pages.
- Make sure the writing style is simple and conversational.
- Do not use long or complex sentences.
- Paragraphs should be short and simple.
- Use graphics and images, but don’t get carried away.
- Use graphs and tables to support your data.
- List all sources of your data and studies.
- Review your real estate development business plan for grammatical and spelling errors.
- Ask someone to correct it for you.
- If you have the resources, hire a professional business plan writer.