I have often talked about making a business plan when you intend to invest in property and have also stressed just how important it is in relation to the whole exercise.
Here I thought I would give you an insight into just how detailed a business plan should be.
Example 1: if you are an investor who does not have a lot of building or maintenance skills it would mean that you would have to employ someone to do any minor painting and repair work for you to make a property tenable, therefore part of your property requirements would be that that type of work would be minimal in a house your purchased. I am thinking here that this type of extra cost on purchasing would not actually add any value, nor would it increase rent by much, but only make the place livable.
Whereas on the other hand, you may, because of that lack of skill, decide that you could afford to do a reasonable refurbishment of say $8,000, increase the value of the property a little and also increase the rental income. In this case it would be worth your while to pay contractors to do the work as you will have a financial gain.
Example 2: this is partly related to #1, but also has its own issues. You may list as one of your criteria that the building must be brick because you feel that in the particular climate or area that you are purchasing there would be less chance of building deterioration due to weather or termites.
Example 3: the area in which you would like to purchase would be where families are more like to be your tenants and therefore you would list as one of your criteria that it is a 4 bedroom family home. These areas are quite often high demand rental areas which are good from a landlord’s perspective.
Example 4: you might now have a couple of properties that have been bought purely from an income point of view and feel that you could now change your criteria for the next property and buy something that is in a holiday destination and use the property for some of your own holidays. If you do want to do this there is a whole raft of new ideas you would need to explore such as:
- overall return on investment
- when you would use the property
- does the destination have a high year round demand for rental
- can you sustain a downturn in holiday rental for a period of time
- the property would need to be furnished
- property management
- will you go high rise or a house
- will you promote the property yourself and increase rental
- tax incentives such as depreciation schedule would be very important because of the furnishings etc.
If you are going to look at this option have a good long discussion with some people who have been down this path and get good accountancy advice. Property Investment Forums are good for ideas, but do remember that the people you are talking to in forums may not actually have done what you want to do so you do need to seek out experienced people to talk to.
You can see that these examples do get quite detailed and that is what a property investment business plans needs so that you can stay focused on building your property portfolio properly, work with your head not your heart, and walk away if you cannot find just the right property.