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This article is excerpted from the best-selling Real Estate Investing Business Plan, available for download from SamplePlan.

The excerpt describes a real estate investment company's established guidelines for their approach to long-term management of their real estate investing business...


Guidelines For How To Buy Real Estate Investment Properties

This business plan defines a long-term strategy for development of a real estate investment company. We recognize that investing in real estate is an opportunity to build substantial company wealth over the long-term and have set the following parameters to achieve our goals.
  • Buy properties only from highly motivated sellers
  • Buy properties at wholesale prices; Re-sell properties at retail prices
  • Make purchase offers based on a Maximum Purchase Price worksheet
  • Maintain adequate cash reserves within the company
  • Establish and follow a goal-based timeline
  • Build and rely on a team of professionals
  • Develop and follow exit strategies for each property and for the company


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Buy properties only from highly motivated sellers

Through the company's marketing efforts, we actively seek out motivated sellers with an identifiable, distressing problem that forces them to sell their property at discounted prices. Common types of distress are personal financial pressures; unemployment; relocation; divorce; health problems; and inheritance of unwanted property.

Buy properties at wholesale prices; Re-sell properties at retail prices

The key to the company's investment strategy is in purchasing properties at wholesale prices. At the heart of the company's strategy is the ability to identify and secure good deals, targeting properties that can be purchased for at least 20-25% less than retail value. If targeted correctly, purchasing discounted, below-market properties can immediately provide positive returns. We can either assign the sales contract to another investor (for a profit) without taking possession of the property; rehab and resell the property at a retail price; or hold the property as a long-term rental investment.

Make offers based on our Maximum Purchase Price worksheet

To consistently achieve positive net profits, the company has developed a worksheet (available by purchasing the business plan from SamplePlan) to forecast each property's net cash profit opportunity. The formula is based on determining the bottom line amount of net profit the company can expect from purchasing a property. Every offer to buy is based solely on whether the investment is a sound business decision. Simply, if the numbers suggest the property may prove to be a successful investment, then an offer is made for the property. The offer price is determined by the formula--which limits our risk in estimating the properties net worth to the company. We limit the number of offers on the table at any given time to the amount of liquid cash accessible; any investor or partnering opportunities present; and the amount of credit we have available.

Maintain adequate cash reserves within the company

Debt management and cash flow is of paramount concern for the company. We carefully manage the company's cash flow situation, never allowing our cash reserves to fall below a predetermined level.

Establish and follow a goal-based timeline

Setting goals and then following through with each goal is imperative for planning our business. We recognize that investing in real estate cannot be entirely planned, as the actual speed at which properties are purchased and resold is not something we can accurately predict. Nor can we predict market conditions. Following a goal-based timeline keeps us moving forward in achieving our objectives.

Build and rely on a team of professionals

We actively build and proactively use a team of professionals with deep experience in real estate investing. The team includes an attorney skilled in real estate; an accountant; several contractors that work consistently with real estate investors; several mortgage brokers and private money lenders; a title company; and a network of like-minded real estate investors. We enthusiastically participate in our local real estate investment association, taking advantage of the educational opportunities as well as the opportunity to meet other investors.

Develop and follow exit strategies for each property and for the company

We have a clear strategy for the intent of each property before we make an offer to buy. Just as importantly, we've developed an internal Operating Agreement that clearly defines how the company functions, including specific methods regarding how to cease all company operations, close the company, pay all debts and divide the company's assets between the owners.


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