Not Every Investor Needs a Business Plan: Here's Why hipsterinvestments.comAs a real estate investor, do you need to have a business plan? No. Wait, let me reel back. You may need a defined plan at some point, but hear me out before deciding on when you need said plan.

If you’re anything like I was when I was starting out, trying to figure out how in the world I was going to pull myself out of my corporate job, business plans seemed essential to my pursuits! Of all the grandiose ideas I kept coming up with, whether it be for a new business or an investment, a business plan was the first thing to follow once I had a new idea.

Now, ask me — of all of those grandiose ideas that I made business plans for, how many of those ideas ever came to fruition? Zero. But,now I own my own business, and I own a successful portfolio of rental properties. Have I ever had a business plan for any of those? Nope.

So I think it’s time to break down the when and the what of a business plan: when you should have it and what it should be.

When Should You Have a Business Plan?

Before I go too far here, let’s clarify some terms. When I say “business plan,” I am referring to what we all learned in school — you know, the one that contains an executive summary, a company description, a market analysis, the organization and management, blah blah blah, all the way down to financial projections over some multiple-year timeframe.

Don’t get me wrong, these plans are great, but the short answer to when you will need that is — IF (and that is a big IF) you need one, you won’t need it until quite a ways down the road, essentially once you already have something in work and functioning (and more specifically if you have some kind of business going, rather than just straight investments). I’ll expand on that later. But the short answer is I really don’t think you need this kind of plan until you are much further along, if even then. Unless you are running a business, you are hoping to sell or you are trying to pitch investors, then someone may want to see this. But for general investing and just starting out, forget about this kind of detail.

Here is a new term I’d like to introduce: “Strategic Plan.” Obviously I didn’t make this term up myself; it already exists, but I rarely hear anyone use this term when talking about investing. The definition of a strategic plan says it is a document detailing out plans that you use to communicate to your organization. Consider yourself, your investing goals, and your organization. This kind of plan is an opportunity to pencil out your general plan and goals, and as an investor, this is all you need to do initially. Am I making this kind of planning sound pretty nonchalant? Well, that’s how I mean it. The reason I say it so nonchalantly is because I don’t think a fancy plan should be your primary focus when you are just starting out.

In terms of timing, here is what I think you should do if you are just getting your feet wet in investing:

  1. Decide your ultimate goal for investing (is it to earn capital, is it to have passive income, etc.) and use that, combined with your interests, to decide which method of investing to try out (flipping, wholesaling, rental properties, notes, etc.).
  2. Try said method of investing out. Feel it out, do a little trial and error in it, explore ways of doing it, and see how well it is resonating with you. If the method is in fact resonating and it seems to be panning out (even a little), go to Step 3. If the method does not seem to be working out or you aren’t enjoying it, revisit Step 1 and then try Step 2 again. Rinse and repeat until you find what seems to work for you, then move on to Step 3.
  3. Based on your now-experience and better feel for realistic processes and returns from said method, now come up with a strategic plan. Start with how much you want to earn, and determine what it will take to earn that. So essentially start out with your end goal (a more specific end goal than your general goals for investing that you came up with in Step 1) and work backwards to determine what will get you there. This — knowing your goal and how you plan to get there — is your strategic plan, and quite frankly, all you need to succeed.

Basically, you need to go with the flow of the real estate investing market and see where you land. This leads me to the next section — what needs to be in your business plan. Or as we’ve now determined, your strategic plan. But before I jump to that, to conclude this section of when you need a plan, the summary of my point is: Yes, have a plan at some point, but don’t stress over it initially and honestly don’t worry about it at all right away. First things first — find what works for you. You can plan all day long to be an amazing property flipper, but if flipping isn’t in your blood, flipping just isn’t going to be your thing! I say all the time that I wish flipping was in my blood because I think it’s a great opportunity and could be a ton of fun. But the reality is, I’m just not a flipper. I wish I were, and certainly if I put my mind to it I could learn it, but it would be going against my natural grain so I’d rather save it for later when I’m in a position to just do it on the side for fun.

Rental properties, on the other hand, follow right along my natural grain, and therefore it is much easier to be successful with them. How did I find that out though? Trial and error. Good thing I didn’t spend too much time making an extensive flipping plan! You have to experience some trial and error to find what you are meant to be doing, and what you like doing. Don’t waste time making an extensive plan in the beginning until you know what this is, other than just knowing your ultimate goal, so you can at least have a starting point.

What Should the Strategic Plan Include?

Ultimately your strategic plan should include how you are going to get to your goal. This can be as detailed or as general as you want it, really just dependent on where you are in the process. Let’s say you want to accomplish receiving $5,000 in passive income per month — all you need to know right away is how many rental properties you have to own in order to get that much in cash flow. You can worry about how you are going to fund them all later; for now just worry about figuring out the magic number. Once you know that, you don’t necessarily have to know exactly how you are going to get them all, just start buying!

Read The Rest On Bigger Pockets.

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