Real Estate Investing – The “Business Plan” and Developing a Market Analysis – Part I

Market analysis is the beginning part of your real estate investment business plan.

What Is Your Target Market?

The first question is what is your target market? These are extremely, extremely critical questions. I don’t think anybody can go through this business plan without addressing that question.

For example, it could be a town that you want to invest in. It could be a zip code. It could be an area code. It could be a part of a town or part of a county or something like Philadelphia that is a very large city. I don’t know how many people we have, 4 or 5 million people, something like that, but Philadelphia is broken up into probably 80 or 90 different neighborhoods. If you wanted to invest, you’d probably pick two or three neighborhoods – that’s it.

As a small real estate entrepreneur, you certainly would not be investing in “Philadelphia.” That’s way too large and way too diverse. There are low-end sections of Philadelphia and there are extremely high-end areas. You would pick two or three neighborhoods that you’d want to invest in. Again, you’d know every single street. You’d know what the prices are. You’d know what the rents are. You’d be the expert.

Narrow Down Your Target Area

Again, try to narrowly define your target area. Where is it? I would estimate that you’d probably need to pick an area that is anywhere from 15,000-30,000 houses. That is a nice size community – not too large, not too small. There should be plenty of deals within a community of 15,000 to 30,000 houses. I would not suggest that you start looking at cities with 500,000 or more. That’s just way, way too big. There’s no way you can become an expert on that area.
The whole point here is, as a private lender, why would I want to invest with you? If you’re not the expert and you don’t have the specialized skill or expertise, if you’re going to be all over the world and have no special skills, why would I want to invest with you? If you tell me, “I’m only going to invest in this small little community, and I know the last 10 sales on that street, and I know what they average,” now you’re starting to pique my interest. Now you’ve demonstrated that you’ve got some really specialized skills, so that’s why we go through this process.

Other Things to Consider

Other things you’re going to need to address –

· What types of properties are you going to be buying?
· Are you going to be buying single-family homes?
· Are you going to be buying duplexes?
· Are you going to be buying apartment buildings?
· Are you going to be doing commercial buildings?
· Are you going to be doing small strip malls?
· Are you going to do multi-unit buildings with commercial at the bottom and residential at the top?

It’s not important what you pick. It’s whatever you think you’re good at and you like. But it’s important that you do define what that is. I don’t want you saying, “I buy real estate.” That’s not really meaningful to anybody. I want to hear, “I buy apartment buildings with anywhere from 10 to 25 units in this town. That’s the type of real estate investor that I am.”

So again, think that through. Define it. You’re going to hear that all through this process, I want you to narrow down your focus. I do not want you to expand your focus bigger because you’re afraid of losing a deal 50 miles away. There are plenty of deals close by. You do not need to go far away.