Later, after you gain experience and credibility, you will be able to raise money based on your reputation and achievements. When you're just getting started, though, I recommend that you write out a business plan for two reasons:
Partners can provide the money. You provide the talent, time, and business plan.
1. Think it through. Writing out a plan forces you to think through your investment project and goals from start to finish. As you write, you clarify. You see glitches (and perhaps opportunities) that more casual analysis frequently misses.
2. Credibility. Which of these approaches would most persuade you to invest in a property? Someone simply asks, "Hey, how would you like to invest $20,000 in a real estate deal I'm putting together?" Or she says,"Here's a copy of my business plan for a real estate investment that I'm acquiring. As you can see from this market and financial analysis, a $20,000 investment will pay you back $30,000 within six months."
To write this plan, you would highlight the market and property data that we discuss later. To further boost your credibility and forthright-ness, you should also pinpoint risk factors and how you're prepared to deal with them. For example,
♦ What if your repair and improvement costs exceed the estimate?
♦ What if the rent raises or value-enhancing improvements take longer than planned?
♦ What if rental or sales prices begin to soften?
All smart investors realize that no one can perfectly predict the future. You can, though, anticipate problems. Then take steps beforehand to alleviate, reduce, or eliminate them. "What if" scenarios should stimulate you to build safeguards into your plans and prepare alternative exit strategies.
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