You don’t need a business plan to succeed. I’ve know many successful entrepreneurs who have done a great job running multiple businesses without a hitch. Specifically, rental business models have been around for generations and are very straightforward. You do not need to go through the rigors of creating a thorough business plan to imitate the success that is already in place.
Regardless, creating a business plan for your rental property is a good idea and there are many reasons why.
What is a Business Plan?
It’s an in-depth analysis and plan for how a business is going to start and operate. It should answer many important questions, such as: what is your business model, where is investment money coming from, who is your market, how much will you sell, what are your expenses, where will your business be located, how will you scale your operations and how much profit will you be making. It’s a challenging hurdle, especially since you may not know the answer to many or all of these questions. However, having a business plan is a great tool for entrepreneurs.
Every Entrepreneur Could Use a Dose of Reality
Would you work 20 hours a week to earn $10 a month? How do you know that rental property won’t force you to work a lot for only a few extra dollars?
Some entrepreneurs live in a world of optimism. They believe that being a go-getter is the only necessary ingredient for success. The reality is that we can set up a business at inception that is doomed to failure. For example, not knowing how much to pay for a house could lead to buying a property with a mortgage that rent cannot sustain. The result could be years of losses.
A business plan will analyze your costs and rent prices. It should give you a reasonable estimation of whether it will be profitable and how much time the business will demand. If you find that rentals take a lot of work for no return, you can walk away from the business before you start it.
Don’t Guess; Strategize
A business plan contains powerful information and can aid in setting up a business strategy. With the information you should be able to figure out:
- How many rental units you need occupied to break even,
- Your rate of return,
- The scale and size of operations you need to meet the amount of returns you want,
- When to fold up the business because it is failing,
- Optimal price,
- Optimal locations,
- And size of the properties.
Knowing many of these factors will help you to rent successfully and prepare you for potential problems.
Want Funding? You Need a Plan
Most investors and banks don’t want to entrust you with their money on blind faith. They want to know how you plan to succeed. If you need assistance in funding your rental business, creating a business plan might not be an option.
Starting a rental business is a complex process. Business plans will help you identify what you need to do and when you need to do it. The speed with which you react to changing business conditions and the flexibility of your business will depend on your organization and understanding of the big picture. Business plans force you to organize your planned business decisions and this makes it easier to evaluate and change later when your free-time is in high demand.
You don’t need a business plan to be successful. However, they can help you to make sound business decisions.