Creating a business plan specific for a real estate developer has some significant challenges and complexities given that they operate on a per project basis. Unlike a real estate management firm that generates income on a monthly basis, the development of a financial model specific for a real estate developer is done on a per project basis which requires a significant amount of planning. One of the best aspects of establishing a real estate development enterprise is that they can adjust their operations based on prevailing market conditions. Although shocks the system can occur from time to time, these businesses once a real estate development has been designed, these firms are able to produce a significant amount of profit from the construction and sale of both residential and commercial units.
When we develop a business plan specific for a real estate developer, we focus very heavily on the target market area, especially as it relates to the median home value. We also address the population size and population density in order to ensure that the real estate developer is going to be able to properly sell their units upon their completion. The scope of our analysis does not stop merely with the overview of regional market statistics. We also conduct an extensive amount of market analysis regarding the prevailing interest rate, mortgage default rate, the current state of the economy, as well as addressing other economic metrics that can have an impact on the developer’s ability to operate.
Once we have the market analysis in hand, we then focus on developing the real estate developer financial plan. Here, we take a look at the unit, economics of each planned, residential or commercial facility that is going to be constructed and sold. Based on the number of units, that we then create the appropriate revenue profile that is shown in each of the first five years of operation. We typically will take a conservative growth rate in regards to year-on-year growth. The scope of the financial model includes a profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, as well as applicable business ratios. These figures are all compared to the unit economics of each unit that is being produced.
We then focus our efforts for developing the real estate developer marketing plan. Here, we focus very heavily on implementing a sales plan that occurs during the course of the development process. This includes the creation of a model home that can serve as a selling point when people are evaluating whether or not to purchase a new residential unit from the company. We also take an online driven approach in regards to creating websites that showcase the individual developments. Over the past 10 years, this has become an extremely popular way of creating substantia; visibility for any new real estate development. Ongoing relationships with real estate brokers and agents is also an extremely important part of the sales process given that these individuals can introduce potential buyers to the firm during the construction process.
After we have completed these primary sections, we then move into the development of the real estate developer operating plan. Here, we showcase the types of units that will be produced through the course of the development. We also take a long ranging approach in regards to the types of subsequent developments that will be carried out once the initial one is completed. The scope of this section of the business plan also includes information about human resources, use of subcontractors, zoning related issues, and other regulatory concerns regarding the individual real estate development.
One of the key sections of the business plan that is done on a secondary basis is the risk analysis. This focuses on the potential economic issues that could occur during the course of development. We always take a very conservative approach when developing any real estate focused business plan, which includes a sensitivity analysis that addresses slight declines in revenue.
After these sections are complete, we then focus on developing the real estate developer executive summary. In this section, we typically will include a number of images that showcase the model homes or related properties that will be created. We also provide a snapshot of the pricing as well as the anticipated revenue and profit per real estate development. This further extends to including highly important markets statistic that indicate the economic liability of the development.