Real Estate Business Plan: Investment, Flipping, and Property Management

Real Estate Business Plans: Different Models, Different Plans

Real estate is one of the broadest categories in business planning. A house flipper, a buy-and-hold rental investor, and a property management company all operate in "real estate" but have fundamentally different business models, risk profiles, and financial structures. Your business plan must be specific to your model.

Lenders and investors in real estate are typically more sophisticated about financial analysis than in other industries. They will scrutinize your assumptions, verify your comparable data, and stress-test your projections. A vague or overly optimistic real estate business plan gets dismissed quickly.

Buy-and-Hold Rental Investment

A rental property business plan focuses on acquiring properties that generate positive cash flow through tenant rents.

Deal Analysis Framework

Every property acquisition should be evaluated using these metrics:

Cap Rate (Capitalization Rate): Net Operating Income (NOI) divided by property purchase price. It measures the return on an all-cash purchase.

• Class A properties (new, prime locations): 4-6% cap rate
• Class B properties (older, good locations): 6-8% cap rate
• Class C properties (older, secondary locations): 8-12% cap rate

Cap rate benchmarks vary significantly by market. A 5% cap rate in Austin, Texas is competitive. A 5% cap rate in Cleveland, Ohio means you overpaid.

Cash-on-Cash Return: Annual pre-tax cash flow divided by total cash invested (down payment plus closing costs plus renovation). This measures your actual return on invested capital. Target 8-12% cash-on-cash return for most markets.

1% Rule (Quick Screen): Monthly rent should be at least 1% of the purchase price. A $200,000 property should rent for at least $2,000/month. This is a quick filter, not a final analysis, but it eliminates unprofitable deals fast.

Expense Projections for Rental Properties

A common mistake in real estate business plans is underestimating expenses. Use these benchmarks:

• Property management: 8-12% of gross rent (even if self-managing, include this cost to show the business works without your sweat equity)
• Vacancy: 5-8% of gross rent (varies by market -- research local vacancy rates)
• Maintenance and repairs: 8-12% of gross rent, or $1 per square foot per year
• Capital expenditures (CapEx): 5-10% of gross rent for roof, HVAC, appliance replacements
• Property taxes: Varies by location (0.5-2.5% of assessed value annually)
• Insurance: Typically $800-$2,500 per property annually for landlord policies
• HOA fees: If applicable, $100-$500/month

Total operating expenses typically run 40-55% of gross rental income. If your projections show expenses below 35%, lenders will consider them unrealistic.

House Flipping Business Plan

A flipping business plan is project-based. Each deal has a defined timeline, budget, and target profit.

The 70% Rule

Experienced flippers use a simple guideline: never pay more than 70% of the After Repair Value (ARV) minus renovation costs. Example: if a property will be worth $300,000 after renovation and needs $50,000 in repairs, the maximum purchase price should be $300,000 x 0.70 - $50,000 = $160,000.

Flip Financial Model

Your business plan should model each flip with these line items:

• Acquisition cost: Purchase price plus closing costs (2-5% of purchase price)
• Renovation budget: Detailed by category (kitchen, bathrooms, flooring, exterior, etc.) with 10-15% contingency
• Holding costs: Mortgage payments, insurance, utilities, property taxes during renovation (typically 4-6 months)
• Selling costs: Agent commissions (5-6%), closing costs (1-3%), staging ($2,000-$5,000)
• Target profit: Most flippers target 10-20% of ARV as gross profit per deal

Scaling a Flipping Business

Your growth plan should address:

• Deal flow: How you will source properties (MLS, wholesalers, auctions, direct mail, driving for dollars)
• Financing: Hard money lenders (10-15% interest, 1-3 points), private money, DSCR loans, or portfolio lenders
• Team: General contractor relationships, project manager hire timeline, subcontractor network
• Volume targets: Number of flips per year and how it scales (most solo flippers max out at 4-8 flips per year)

Property Management Business Plan

If you are starting a property management company (managing other people's properties for a fee), the business plan focuses on different metrics.

Revenue Model

• Management fee: 8-12% of monthly collected rent (most common)
• Leasing fee: 50-100% of first month's rent for placing a new tenant
• Maintenance markup: 10-20% markup on maintenance work coordinated by your team
• Late fee income: Typically split 50/50 with property owner
• Lease renewal fee: $100-$300 per renewal

Scaling Metrics

Property management is a scale business. Key metrics to model:

• Doors per property manager: One property manager can handle 100-150 doors (units) with software support, 60-80 without
• Break-even: Most property management companies need 75-150 doors to break even, depending on average rent and fee structure
• Growth rate: Plan to add 5-15 doors per month through marketing, referrals, and real estate agent partnerships

Financing Options for Real Estate

Your business plan should detail which financing strategies you will use and why:

• Conventional mortgages: 20-25% down, 6-8% interest (2026 rates), best for long-term holds. Limited to 10 mortgages per individual under Fannie Mae guidelines
• DSCR loans: Qualify based on property cash flow, not personal income. Typically 20-25% down, rates 1-2% higher than conventional. Good for scaling past 10 properties
• Hard money loans: Short-term (6-18 months), 10-15% interest, 1-3 origination points. Used primarily for flips and BRRRR deals
• Private money: Loans from individuals, typically 8-12% interest with flexible terms. Build these relationships proactively
• Commercial loans: For properties with 5+ units or portfolios. 25% down, 5-7 year terms with 20-25 year amortization
• Seller financing: Negotiated directly with sellers, terms vary widely. Useful for off-market deals

Portfolio Growth Strategy

Lenders and investors want to see a realistic acquisition timeline. A common approach for a rental portfolio:

• Year 1: Acquire 2-4 properties. Focus on learning, building contractor relationships, and refining your analysis process
• Year 2-3: Acquire 4-8 properties per year. Use equity from existing properties (refinance or HELOC) to fund down payments
• Year 4-5: Scale to 8-12 acquisitions per year with systematic deal sourcing and established lending relationships

Show how portfolio cash flow grows over time and at what point it replaces or exceeds your current income. This is the metric that motivates most real estate investors and resonates with lenders evaluating your commitment. For guidance on the financial projection sections, see our financial projections guide.

A real estate business plan must demonstrate deal analysis discipline, realistic expense modeling, and a clear financing strategy. Whether you are buying your first rental or building a portfolio of 50 properties, the plan keeps your strategy grounded in numbers.