Components of a Real estate development business plan

Is a business plan for real estate development necessary?

Yes, creating a business plan for real estate development is a necessary step in order to provide a strategic approach to a project. There are cases in which a business plan is of the utmost importance especially if the developer is working on a project aiming to be sold to someone else.

What is a real estate business plan?

A real estate business plan is a simple document that outlines the goals, strategies, and objectives of your real estate development. 

It can also include a market analysis and financial projections to help you or your investors determine if your business idea is viable and set some expectation benchmark for the future.

Creating a business plan can seem a daunting task, but you’ll see what a little bit of planning can do to your real estate enterprise if you apply the basic concepts in this article.

Here’s an outline of what should be included in your business plan:

Executive summary

This is a brief written overview of your rental business, including your mission statement, target market, and financial projections. 

Even though the executive summary will be “page one” of your business plan, it is actually the last step in the creation of a business plan. First you will have to gather intelligence and create your financial projections.

Competitive analysis

A real estate competitive analysis is a process in which you identify your competitors and assess their strengths and weaknesses in relation to your own business. 

This information can then be used to help you develop strategies to improve your own positioning in the market.

After you find the ideal location to establish your real estate rental business, it is vital that you start considering what other entrepreneurs are doing in your area and try to reverse-engineer their strategy. 

The competitive analysis is particularly useful to you to understand:

• Who are and how many competitors are in your same area?
• What are they offering in terms of benefits?
• What can you offer more to your guests to make your development more appealing?
• Identify and study their marketing strategies. 
• What kind of clients do your competitors have?
• How are they pricing their products?
• Do they even sell or it’s just a show?

There is a lot to cover when it comes to performing competitive analysis for real estate rental businesses and every individual entrepreneur usually finds its own way and develops a unique view of its market of reference. 

What you want to achieve with the competitive analysis is to understand what are the standards in your area, and what solution you can offer within your product that will make your development more attractive to buyers.

Real estate is a competitive game, and competition is good.

Buyers benefits

Buyers / investors are not looking for your product, they are looking for the benefits associated with it.

It could sound obvious but do not discount this piece of information. If you are developing a project and aiming to sell it the above recommendation is all that matters. Work hard on creating a compelling offer and deliver it.

Success will follow suit.

Financials

The use of numbers in your project business plan is important.

You must be able to describe your business's financing strategy in full, together with any projections for estimated future revenue and expenses of your development project.

To do so, in our development company in Bali we use financial models  to eyeball opportunities or to carefully study the viability of a project and its profitability.

If you ever consider developing your project in Bali, have a look here.

A Basic Framework for Real Estate Financial Models

The following are some of the main variables that have the higher impact on real estate development projects:

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• Land Cost & Impact: This metric gauges the economic foundation of a project, revealing how land prices can influence the overall money dynamics.
• Construction Costs: By offering a clear breakdown of construction-related expenses, developers can ensure that this significant chunk of the budget is utilized efficiently.
• Contingencies: The real estate realm is full of unpredictabilities. A buffer for unexpected costs ensures smoother sailing.
• Marketing Effort: A property, no matter how impressive, needs visibility. Financial modeling offers insights into the costs associated with marketing initiatives.
• Permit Costs: Navigating the bureaucratic labyrinth comes with its own set of costs—a fact that any financial model hould consider.
• Ideal Land Size: Striking the balance between cost and revenue, the model provides insights into the land size that offers the best ROI.
• Sales to Break Even: A crucial number, this metric outlines how many units need to be sold to cover costs.
• Income, Taxes, Margin, and ROI: These bottom-line figures outline the ultimate profitability, offering a clear snapshot of the money health of the project.

Marketing plan

Marketing is a very subjective matter and is always difficult to have everyone agree on how to strategize that.

Getting into the real estate business also means that you will have to attract buyers and thus create a clear vision of your target market and the kind of buyer you want to attract early on. This will be very important for helping you get more sales.

• Emphasizing Benefits Over Features: Instead of solely listing property features, focus on conveying their value.
• Highlighting Unique Selling Proposition (USP): Identify what distinguishes your property.
• Virtual Tours: In today's digital era, a 3D virtual tour offers prospective buyers an immersive experience, enabling them to explore the property from anywhere in the world.
• Showcasing Potential: Illustrate the possibilities – how a space can be utilized, decorated, or transformed to suit various preferences.

Operative plan

The operations plan, which is sometimes called the management plan, needs to include the specifics of how you want to run your new business on a day-to-day basis.

In this case you can do it yourself if you want to save some money or rely on companies that can manage everything for you. It's your choice, but make sure to plan this in advance to avoid surprises.

Ask yourself:

• Who will be in charge of running it on a daily basis?
• How many staff members will you need to employ?
• What will they be expected to do?
• What are your service standards?
• Which suppliers will you use?
• How much will management impact my monthly expenses?

Conclusions

As you see, there is a lot that goes into creating successful development project and what you saw here is really the tip of the iceberg.

If you are just getting started make sure to plan everything before you start or to work with experts.

The last thing you want is to find a problem too big to overcome, especially if your budget is limited.