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Real Estate Investors: The Business Plan and the 3 Mistakes to Avoid

By Michel Lautensack

Republish: EasyPublish™ Published: 02Sep2009 Word count: 576 Viewed: 101 time(s) Get Free Content For Your Site

I would like to talk about some of the things we want to avoid in the business plan, and a lot of these come out of experience or viewing a lot of business plans over my lifetime, not only in the real estate business, but I also have a corporate background.

I did a lot of turnaround work, and we evaluated a lot of business plans as part of that experience. We were probably analyzing 200 or 300 business plans a year, so I've gotten use to seeing a lot of plans.

Avoid Being Generic

One of the key pieces that really bother me about business plans is when they're generic, and that goes back to, Deb, your question on mission statements. Do not take a business plan that maybe you've gotten from a course that you went to, or you bought somewhere on the internet and it says, "I'm going to buy houses, I'm going to do this."

Don't do a generic business plan. You're really not serving anybody, and it almost becomes annoying because again you didn't think anything through. It's not about you personally. Be very specific about your experience, your skills, and your expertise and your thought process in terms of developing.

You can start with a generic plan if you want to get some things rolling and get some language, but then start to add, refine it, craft it down to your business.

Failure to Focus on Short Term

Another thing we see a lot of is long-term versus short-term. Make sure that you don't go beyond five years. It makes no sense. Even five years, quite honestly, who knows what's going to happen in this environment in the next month, let along five years from now.

Most people, certainly me as an experienced business person, I'm going to focus on the next 12 months because, frankly, if you can't get through the next 12 months it doesn't matter what happens after that. And if I don't believe what's going happen in the next 12 months I don't even really want to see. Really, try to focus more on the short-term than the long-term.

Do the monthly analysis for the first 12 months, and then the following couple of years can be done as a cut and paste kind of sort. But spend most of your time focusing on short-term and make sure that those sections of your plan are pretty solid.

Overly Optimistic Assumptions

The other thing that I see over, and over, and over again, and my coaching students know this, is over-optimistic assumptions. They go to some course and they were told by the instructor that they can buy 10 houses this year.

You can't do it if you haven't done it before. Buying 10 houses is an enormous amount of work. It probably takes a full time job to buy 10 houses. And if you're going to be buying commercial units, it's impossible. So be realistic. If you bought three houses last year, assume you're going to buy four this year. That's it, nothing more, four. Don't go from 3 to 10 to 20. It doesn't happen that way.

There's nothing wrong with saying, "I'm going to buy four houses this year," and go out and buy six. There's nothing wrong with that at all. But if you tell me, "My model is I'm going to be buying 10 houses this year," and you already bought one and it's now June or July, there's not a lot of credibility there.

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