A house flipping business plan explains your fix and flip business’ goals and what steps you need to take to make profits. It’s also used by lenders and investors when deciding if they want to finance your fix and flip business. Typical things included in a business plan are your target price range, timeline, repair budget and type of home.
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Free House Flipping Business Plan Template
It’s important to have a house flipping business plan so you can set yourself up for success as well as reference different parts of it later on. Without a business plan, your house flipping business is more likely to fail. A good house flipping business plan outlines the types of properties you expect to flip and how you’re going to turn a profit.
Things included in our house flipping business plan template include:
- Mission Statement – Summary of your house flipping business that outlines what you do specifically and where you do it, including what sets your company apart.
- Goals Summary – This is a list of your goals centered around expected short-term real estate profits and how you will achieve them.
- Lead Generation – This is how you will find distressed properties to flip and find possible buyers once the property is renovated.
- Comparative Market Analysis (CMA) – A CMA is a tool that compares similar properties to help you determine what price you should pay for a property and what you should sell it for.
- Timeframe – It’s the time allocated to buying, renovating and selling individual fix and flip properties.
- Budget – This determines how much you can spend on buying, fixing and flipping the property to make a profit.
- Funding Sources – These show how you’re going to pay for the purchase and renovation of distressed properties and are generally cash, investors or financing.
- Exit Strategy – This shows how you’re going to get out of the property, usually by selling it, and is especially important to lenders and investors.
The 8 areas every house flipping business plan should cover are:
1. Mission Statement
A mission statement for a house flipping business plan is a short summary of your company’s purpose. Your mission statement should include that you’re going to fix up distressed properties and sell them while creating jobs and improving the neighborhood. It should also include the geographical area you plan to flip houses in as well as the types of houses you want to flip.
The mission statement also outlines your target customers, which will typically be distressed home sellers when you purchase properties and investors or owner occupants when you flip them. It includes your business’ values and competitive edge or future goals. For example, you may pay the closing costs for each sale or include a home warranty on each property. Those would be things that set your business apart, also known as your competitive edge.
Don’t forget to mention any social causes your business proceeds go towards and if there is a specific cause you donate time and materials to. If you use eco friendly building material or donate a portion of your proceeds to Habitat for Humanity, those would be great things to mention in your mission statement.
For example, your house flipping business plan’s mission statement could be something like: To buy distressed properties, renovate them, and sell for a profit within 6-12 months, helping buyers and sellers get what they want while at the same time improving the local community.
2. Goals Summary
A goals summary is exactly as it sounds. It outlines your goals – both short term and long term – and how are you going to achieve them. It should clearly show your implementation process and approach to reaching that goal. As a general rule of thumb, include your top 5 house flipping business goals and a brief summary of how and when you expect to achieve each.
When coming up with your top 5 house flipping business goals, it’s good to break them down in the following way:
- Annual goals – These goals are your longer-term stretch goals, such as annual profits or annual number of flips
- Quarterly goals – These are shorter-term goals that when combined, help you achieve your annual goals. For example, if your annual goal is 12 flips, then you’ll need to do 3 flips a quarter.
- Monthly goals – Similar to quarterly goals, these goals help you achieve your quarterly ones. Identifying 5 quality leads a month, for example, will help you reach your desired 3 monthly flips.
As you can see, the goals for a house flipping business are typically centered around monthly profits or the total number of monthly flips. This will help you better understand your business’s potential performance and success, as well as your return on investment (ROI).
For instance, one of your goals could be to make $20,000 per month flipping houses. To reach that goal, you need to summarize how you would get there by explaining how much you expect to make off of each fix and flip. You would briefly lay out the average profit on each flip and how many flips you can do in a month, based on your timeline, resources and team.
Another goal could be that you want to flip 3 houses per month. You would want to summarize how long it takes to find and flip each house and how much money you would need to reach your goal of 3 flips per month. Basically, the ultimate goal for a house flipping business plan is to make money flipping houses, and a good goals summary will outline the things you need to do in order to get there.
3. Lead Generation
After you know your goals, you want to focus on achieving them, which is where lead generation is helpful. Regardless of your specific house flipping goal, you’ll need to generate leads that help you find properties to flip. This section of your house flipping business plan outlines where and how you’ll generate leads, including how many leads you want to generate per project.
You can find property leads by using a local real estate agent, joining an investment group, looking online at sites like Zillow or Foreclosure.com or by creating bandit signs and canvassing neighborhoods. You can also look for properties that may sell below market value at auctions. You can even buy for sale by owner (FSBO) leads from sites like RedX.
You will also use lead generation when you’re ready to sell your property. The more people that know about the property, the more people that will view it. This means that you’re more likely to get an offer and get it sold so you can make some money and move on to the next deal.
4. Comparative Market Analysis
A comparative market analysis (CMA) is a tool that helps determine what the selling price of a home should be. It compares the prices of recently sold homes in the same area as the subject property. The comparable homes should be similar in square feet, lot size and should feature a similar number of bedrooms, bathrooms, and features. The homes should also be near each other.
A CMA is usually performed by an experienced real estate agent, and most agents will do it for free if you’re already working with them as a client. If you choose to do a CMA yourself, you will need to use online public records to determine the correct sales prices of the comparable homes.
Some pro tips to consider when looking at or performing a comparative market analysis:
- Compare apples to apples. If the subject property has 3 bedrooms and no garage, don’t compare it to a 5 bedroom home with a 2 car garage.
- Pay attention to school district ratings since a high rating can increase the value of a property and vice versa.
- Use comps that are an appropriate distance away from the subject property. For cities, this means within 3 blocks, in the suburbs it may be closer to a mile, and in rural areas, it may be a few miles.
- Don’t confuse pending prices with sold prices, the pending price may be significantly higher than the actual sold price of the property.
Your timeframe is going to affect how quickly you can purchase a property, how long it takes you to renovate it and how long it takes to sell it. Your time frame directly affects your budget and also your general house flipping strategy. It’s important to do a good job renovating the fix and flip property and you don’t want to cut corners, but make sure you stick to your timeline.
Most flips can be completed in 2 -3 weeks and sold in just a few months. For each day you own the property, you will be responsible for its carrying costs, which eat into your profits. When coming up with your timeframe, you’ll want to outline exactly how long you expect a project to take, and therefore how many projects you think you can complete in any given month, quarter, or year.
Your budget is one of the most important parts of your house flipping business plan. It will determine how much cash you have in reserves and how much you can budget towards marketing. It also dictates how much of your funds can go towards hiring professionals and how much it will cost to flip a house. These costs will include acquiring the property, rehabbing it and flipping it.
Here are some typical things to include in your budget that aren’t holding costs:
- Cost of acquiring the property
- Closing costs, including lender fees
- Expected renovation costs
- Marketing costs to sell the property
- Staffing costs, which include paying an assistant, CPA, attorney etc.
Keep in mind that your budget and timeline go hand in hand. For example, your budget should also include your carrying costs, based on your expected per-project timeframe. Common carrying costs include:
- Mortgage payments
- Property insurance, which is typically higher when the property is vacant
- Property taxes
- Utility bills including water, electric, heating and A/C
- HOA fees, if applicable
- Dumpster fees or any rental equipment fees
7. Funding Sources
Now that you know what to include in your budget, you need to know how you’re going to fund your fix and flip business. Most house flippers fund their business with either cash, the help of investors or financing from a lender.
These lenders offer fix and flip loans with higher rates than conforming loans. However, they are usually interest only loans with short terms. They allow you to buy properties in poor condition and finance some of the renovations as well.
Common fix and flip financing sources include:
- All cash
- Financing with a hard money loan
Remember that your funding source will affect your holding costs, timeline, and overall budget. Be sure to factor in your funding sources to these aspects of your house flipping business plan. For more information on funding sources, you can check out our ultimate guide on the best hard money lenders.
LendingHome is one of our recommended hard money lenders. They prequalify you online in minutes and can fund your loan in as little as 15 days. They offer competitive rates and they lend up to 75% ARV and 90% LTV.
8. Exit Strategy
The last step in your house flipping business plan is having an exit strategy in place. This is important to your bottom line and is often required by your lender if you’re financing the fix and flip property. An exit strategy is simply how you are going to get your money out of the property.
The best case exit strategy for a fix and flip investor is to quickly flip the property for a profit and pay the loan off at settlement with a portion of the proceeds. In order to achieve this, you will have to know what property to purchase in what neighborhood and for what price. You will also need to stick to your budget, timeline and utilize professionals to assist you along the way.
An alternative exit strategy is a cash out refinance where the investor refinances the property so he can take equity out of the home. The investor pays off the existing mortgage using the new loan and receives whatever the difference is in cash. Typically, investors use this cash to purchase another investment property or to upgrade one of their current properties.
Fix and flip investors sometimes refinance their fully renovated property into a long term loan so they can pay off the high interest on the hard money loan. However, this is usually only done if you plan to keep the property and rent it out or if you can’t sell the property.
Assemble a Team to Execute Your Plan
After you have put together a detailed house flipping business plan it’s time to decide who you need on your team to execute your plan. You need to consider who to hire and when to hire them based off of your needs and your budget. Then you will clearly need to define each team member’s roles.
Each member of your team will be hired at specific points in your business plan’s life cycle. For example, a realtor is usually hired first, then an attorney, a contractor and finally a CPA. Remember to account for these hiring costs in your budget.
4 key people you need on your house flipping team are:
- Realtor: Hire them when you start looking for properties and they generally get paid by the seller. You will then want a realtor to help you sell your finished flip too, and you will pay them a commission, generally 5 – 6%, from the proceeds.
- Attorney: Hire an attorney prior to purchasing a property. He or she can form an LLC for your property to limit your personal liability. Make sure it’s a real estate attorney so he is familiar with local zoning ordinances and other legalities you may not be familiar with.
- Contractor: Hire a contractor once you find the property. He will buy materials and hire subcontractors and work to rehab your investment property. He may even be able to recommend landscapers and cleaners if you need them.
- CPA: Hire a CPA after your first flip so you have available funds to pay him. He will advise you of tax deductions such as mortgage interest and property taxes, as well as property depreciation deductions.
Why a House Flipping Business Plan is Important
A business plan is important for every house flipping business owner to have, regardless of their level of experience. It takes your elevator pitch, your revenue model, your goals, timeframe and budget, and lays them out on one easy to read format that can be changed or updated as your business grows.
Reasons why a business plan is important:
- It’s an organizational tool
- It helps lenders and investors see your plans and take you seriously
- A house flipping business plan lets you see if your revenue model makes sense
- It shows you what you can afford based on your budget and your revenue predictions
- A business plan is a place where you can easily access your business objectives to share with staff
- Investors and lenders look at it to determine if they want to finance the business
“House flipping is a roller coaster experience and planning is key if you expect to continue full-time. A proper business plan will tell you how much money you should have on hand and it will help you determine how money will flow in and out of the project. Nothing is worse than getting half-way through a renovation and realizing that your bank account is empty. A house flipping business plan will help you avoid this.” – Evan Roberts, Owner, Dependable Homebuyers
Creating a house flipping business plan is the first step to take when starting your business. It puts all of your ideas and goals on paper and shows you step by step directions on how to achieve them and start making profits. Download our free business plan template to get started.
It’s important to prequalify for a mortgage and get your projected rates upfront which enables you to better plan for your next project. This is where LendingHome can help. They can prequalify you online in minutes and get you funded in a matter of days.