How to write a House Flipping Business Plan
The House Flipping or Home Renovation industry is a growing trend for several reasons. First, there are substantial profits to be made in house flipping. Our business plan writer has done some quick research in relation to house flipping in-home renovation and average profits for sales of approximately $60,000.
Not bad for a couple of months' work. A second reason that house flipping in-home renovation companies are expanding is the growing demand for affordable housing. In some instances, when investors purchase and renovate a home, they often attempt to undercut other homes in the area one for sale. This often leads to a lower price for buyers. A final reason that house flipping and home renovation business plans are in high demand is the need for a structured plan through the renovation process. Renovating the home often takes significant funds invested as well as a specific process to follow. With the help of a business plan writer, a timeline and budget may be included in the business plan to assist with this issue.
From this foundation, the need for a house flipping or home renovation business plan cannot be understated. Here are some tips and tricks to utilize from our professional business plan writer when writing a business plan for this industry.
Executive Summary for a House Flipping or Home Renovation Business Plan.
In the executive summary section of the House Flipping or Home Renovation business plan, make sure to first discuss what type of business your organization will be. For the most part, investors flipping homes use a sole proprietor structure. At least for the first few homes flip. This is because investors often choose the path of least resistance, and a sole proprietorship is definitely this type of path. However, as an investor flips more and more homes, they often seek the cover of a limited liability corporation, based on research from our business plan writer.
Also, in the executive summary section, make sure to discuss how your business will look and feel for customers. For house flipping, this often entails describing the parameters of a home that will be purchased and sold. For example, some investors will discuss their max purchase price and renovation cost in this section. Also, these types of business plans provide guidance as to how much a property will sell. This helps readers of the document best understand their potential returns and funds needed for investing.
Company Information for a House Flipping or Home Renovation Business Plan.
The company information section of a House Flipping or Home Renovation business plan should start with explaining the problem that the company will solve for the client, then address the “Who, what, where, when, why, and Hows.” In most cases, the problem that a house flipping in-home renovation business solves for their clients is the need or want for a new home but cannot afford an actual new house. In other words, there are a lot of people out there that would love to purchase a new home with all new amenities and fixtures. However, the price of a new house is often substantially higher than purchasing an already built home. From this, this next best option is a home that’s been completely renovated.
Product Description for a House Flipping or Home Renovation Business Plan.
House Flipping or Home Renovation businesses generate revenues from selling homes that have been remodeled. In some instances, when a renovated home does not move quickly, then a second revenue source may be renting out the facility. A final strategy for revenue generation would be to flip three or four homes in a role and then ran out the fifth home. By doing this, our business plan writer has found that house flipping investors are able to enjoy diversification through two different revenue streams.
Competitive Advantages for a House Flipping or Home Renovation Business Plan.
The House Flipping or Home Renovation industry has been growing substantially over the last several years, thanks to the lucrative profits in the industry. From this, the need for competitive advantages in the home flipping industry cannot be understated. Our business plan writer has found that there are two main strategies that are employed to create competitive advantages. The first strategy is to use high-end products and building supplies when renovating the house. By doing this, investors are able to better compete with new home builders for the sale of the property. A second strategy is to go economy. In other words, renovate a home to the point where customers are able to come in and finish out the renovation relatively easily. This allows the investor to lower the sales price and the buyers to finish refurbishing the home at their leisure.
Location Description for a House Flipping or Home Renovation Business Plan
The location for a new House Flipping or Home Renovation facility is critical for the success of the business. In this particular industry, our business plan writer has found that home renovation investors often select homes to purchase in a specific geographic area. For example, if an investor lives in the Orlando, Florida area, then they often purchase homes in this general vicinity. This is often the case for a couple of different reasons. First, by purchasing a home in the city in which they live, drive time from home to “work” is relatively short. Also, investors like to purchase homes in the area for which they live because they know the real estate market well. This helps to lower the overall risk of the process.
As for the general location of the House Flipping or Home Renovation facility, our business plan writer has found that these types of businesses do well in subdivisions. An unfortunate reality is that vacant homes often are vandalized or broken into. By selecting homes to renovate in subdivisions, neighbors often watch vacant homes and are almost like free security.
Target Market for a House Flipping or Home Renovation Business Plan.
A common House Flipping or Home Renovation target markets are individuals or families seeking to buy a new home. New homebuyers have specific needs as customers. They want a house that’s never been lived in. Also, they want new appliances and interior fixtures. However, some customers that want to buy new homes just cannot afford them. From this, the second-best alternative is a completely renovated home by a professional home renovator.
Industry research for a House Flipping or Home Renovation Business Plan
Based on quick research from our business plan writer, the main industry in which House Flipping or Home Renovation competitors compete in the home remodeling industry. In this industry, competitors will renovate the interiors and exteriors of homes. Also, renovators may or may not own the actual building itself. Revenues for the home renovation and home flipping industry are approximately $85 billion. In the last five years, industry experts have found that the industry has grown by approximately 7 ½% annually. However, in the next five years, our business plan writer has found that this industry may grow by approximately 1% annually. There are about 130,000 different competitors in the house flipping in-home renovation industry. Also, profits for the industry exceeded $4.5 billion based on industry projections. The main segment of revenues comes from outside additions. A close second is room additions.
Owner and Management Section of a House Flipping or Home Renovation Business Plan
Owning and managing a House Flipping or Home Renovation business is quite different from other organizations. This is because owners are often individuals or partners. Specifically, ownership for home flipping companies usually starts with one or two individuals that will either complete the work for the home renovation and monitor subcontractors. A second structure is to have these individuals as part of owners and then the investor with the funding as a part-owner as well. By doing this, investors make substantial profits while the individuals finding the homes and renovating them still make a decent reward as well.
Funding Request for a House Flipping or Home Renovation Business Plan
Starting in the House Flipping or Home Renovation business is actually quite expensive. Business owners need to not only purchase the actual house but also pay for renovations that need to be done. From this, our business plan writer has found that funding needs may range from 150,000 to a half-million dollars. Because of the substantial funding needs, home flipping professionals often seek out the help of hard money investors or loans from banks. Further, another viable funding option is a line of credit from a lending institution. This allows the investor to tap the line of credit when renovating and purchasing a home. Then, they are able to pay off the balance after the home sells relatively easily.
Financials for a House Flipping or Home Renovation Business Plan.
Financial projections and financial models for a House Flipping or Home Renovation business plan should first start with budgeting for the purchase of a home and renovation costs. Once this is done, then business owners need to determine which mode of financing they are going to select, whether it’s an investor partner or bank loan. Once this information is compiled, then projections may be made for when the funding will be spent and when they expect to sell the home will be. Once this is complete, then the business plan writer can expand this process to cover 12 months.
Also, our business plan writer has found that real estate home flippers all too often need customized financial models to help convey the profit and losses for the year. Specifically, we find that typically real estate renovation and sales professionals need financial models that show costs being incurred for the first two months of renovations. After this point, in the third month, the sale of the home is often anticipated. By following this structure on a quarterly basis, business owners are able to better document the cash flows for renovating and selling a home.
Hopefully, these insightful tips and tricks for writing a business plan were helpful. As always, if you need help with a business plan or financial projections, just send us an email or give us a call.
Author: Paul Borosky, Doctoral Candidate, MBA., Author