Nearly all investors lack a rock solid, real estate investing business plan. Many don’t find it necessary at all…plenty scoff at having one…so it’s no wonder that in 2004 a study by Tactical Real Estate discovered that 92% of all real estate investors drop out in their first 90 days.

Even more alarming, of the 8% who stick to investing the following 9 months, 90% of these investors drop out because they haven’t survived the first year of their portfolio.

When you compare those facts to the statistics reported by the U.S. Small Business Administration (SBA.gov), a government agency that tracks business start-ups, they’ve found that over 50% of all small businesses fail within their first year.

This compellingly sad fact – that there is a far higher failure rate and attrition of real estate investment businesses than any other type of business around – can only point out the need for anyone investing in real estate to have created a rock solid, real estate investing business plan.

And what does Warren Buffet have to do with it? For one, the man is a pure investing genius. Since he’s created his massive empire by investing in stocks, which is a decision made after reading the company’s financials, studying their industry, and identifying key success factors within its business plan, there’s really no better person that I can think of who could better critique a business plan.

Moreover, many of Mr. Buffet’s business principles can be applied to creating your own real estate investing business plan as well, and hence I give you the 7 Essential Elements to you’ll need to create a real estate investing business plan that would make even Warren Buffet leap over tall buildings to invest in with you:

The 1^st Element – Executive Summary

With my consulting clients, I have them write this first of all (even though it will change when the plan is completd). Your executive summary in your real estate investing business plan sets the strategic tone and direction for your business, and in 2 or 3 paragraphs, anyone not aware of what your business is, the value it provides, how it’s to be positioned in the market and its expected revenue growth, will have a clear understanding. Your Executive Summary is a high level overview of the long term goals you’ve set out, where you’ll be operating, and how you expect to compete and succeed.

The 2^nd Element - Research & Strategy

Warren Buffet once stated, “Whenever we buy common stocks for Berkshire's insurance companies (leaving aside arbitrage purchases), we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay.” This basic principle sums up a lot of what made Warren Buffet so successful.

He didn't just buy into opportunities because they seemed likely.

He actually closely looked at earning prospects, financial health, management, fundamentals, philosophies, and employers of businesses he was thinking of investing in. Real estate entrepreneurs need to be just as choosy and just as careful about the properties they buy. Even if you hope to just rent out, and/or buy, flix, and flip property, you should still investigate it and your marketplace with the same vigor as you would investigate a home you were putting in your entire life savings into.

When it comes to research, what are the demographics of the marketplace? What cycle is it in? (expansion, contraction, or absorption)? What investment strategy should you apply to yield the greatest amount of cash profits in the next 6 to 12 months? What’s the competitive landscape like? Are their “clients” who want the services your investing business is going to offer? Where are you targeting properties in the market? What is the acceptable price range suited for your needs and why? What neighborhood is it in? Has there been any serious damage to these properties in the past 10 years? What are its real condition? What are the average earnings potential per deal?

The 3^rd Element – Business Opportunity (Market Size)

Warren Buffet is known for purchasing stock in companies, or entire businesses for that matter, whom have a significant market share in their industry.

As his portfolio includes companies such as Gillette, GEICO, Coca-Cola, American Express, and the Washington Post, he has a broad reach over a number of industries that help expand and grow the investment portfolio of Berkshire Hathaway.

How this translates to you as the solo, investment business entrepreneur is you need to identify the particular price points of properties in your target area, determine how inventory there are in the vicinity, project the probability of how much of this inventory you can buy at a substantial discount (with a minimum 15% profit margin at today’s Fair Market Value or Retail Price), and precisely how you can expand your business into other cities and markets over the next 24 months.

Give yourself permission to go BIG. Then abstract from that the projected profit margin from your business and you’ll see just how large (and profitable) this can be for you.

Simply put, make sure that the properties you are purchasing or investing in have a significant position in their neighborhoods. For example, if you are buying residential properties, make sure that you're buying in a place where there is a demand for residential rentals or purchases.

If you are purchasing an investment property, make sure that there is a local clientele in place for that property and describe those items here. (Tip: spreadsheets help..you’ll have fun with it…go to your local Chamber of Commerce and get a “Business Relocator Kit” which will have this statistical and demographical information).

The 4^th Element – Marketing Plan.

The last thing a successful investor like Warren Buffett would is to invest into businesses that always guessed at their future profitability and had a loose, unfounded marketing plan for generating prospects, and unproven ways for converting those prospects into customers.

As a real estate investor, your business needs to decide on the type of marketing that will powerfully increase your visibility, draw in motivated sellers and investor buyers like a ten ton magnet on steroids, and follow proven processes for converting those leads into deals, and those deals into profits for you. Are you using proven online webites? Proven sales scripts and automatic response programs? Do you have a compelling value proposition? Who is your ideal target client profile? How are you positioning your business to disrupt your competition and dominate?

For Buffett, he only buys into businesses he can understand and evaluate accurately. With your real estate investing business plan here, you need to make sure it’s doing the same thing.

The 5^th Element – Your “Product”

One of the things that Warren Buffet said, that any entrepreneur investing in real estate should remember is: "We are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate . . . we do not sell our holdings just because they have appreciated or because we have held them for a long time."

With television programs such as House Flipping so popular, many real estate investing entrepreneurs imagine that the real estate game is all about flipping properties very quickly.

That’s not always true.

In many instances, successful investors have created enormous fortunes by real estate investing over the long term. That is, some of the biggest success stories have bought commercial real estate, marketed it better to increase the vacancy rates, and are generating a large, steady income while building their net worth.

For you, this where you need to clearly outline the types of “product” you’ll be investing in, the length of time involved for each type of real estate, and the proposed exit strategies along each step of the way, with a focus for long-term wealth creation.

The 6^th Element – Your Power Team

This is defined by the outsourced members in the real estate investing field who will be the “enablers” for you to start, run, and scale your investment business. People like Realtors, Mortgage Brokers, Real Estate Attorneys, etc go here. Be specific as to why you have chosen these individuals in terms of what value they bring to the table, and how they propose to deliver this value to your business. Always have references (at least two) for each member of your power team

The 7^th (Final) Element – Resources & Financial Targets

Now we’re well beyond your Power Team in terms of additional hard and soft resources you’ll require. For example, do you have an investment advisor or real estate mentor to guide you through the growth of your business? Do you need websites and marketing systems to promote your business?

How much money do you expect to generate in the next three months? What do you need to generate a 6 figure bank account and 7 figure real estate gains within 7 months? This final section of your real estate investing business plan shows your existing resource constraints, and profit targets – both short and long term – and how you arrived at these conclusions.