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Real Estate Plans

Updated on January 12, 2016
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Stephen Bush is the founder and CEO of AEX Commercial Financing Group. Steve obtained his MBA from UCLA and is a U.S. Navy veteran.

What Is Your Plan?
What Is Your Plan?

Real Estate Planning

The practical need for real estate planning is illustrated by the diverse set of problems and risks currently at work in residential and commercial real estate markets.

An excellent example of real estate plans is contingency planning for financial activities by both individuals and small businesses. Unfortunately, this excellent small business planning strategy is overlooked far too often.

If "Always Have a Plan B" is good advice, what is your Plan B?

Always Have a Plan B
Always Have a Plan B

The best way to predict the future is to plan it.

— Peter Drucker
Strategic Real Estate Planning
Strategic Real Estate Planning

The Value of Plans

The subject of planning and business plans is not new. Peter Drucker and many others have long endorsed the value of businesses engaging in forward planning as a key element for preventing problems. A business planning area that has been relatively overlooked by small businesses is contingency planning regarding their commercial real estate financing.

When you think about it, this is a huge oversight — after all, the real estate owned by many businesses represents a sizable asset. Thoughtful planning is an absolute necessity to avoid potential risks and problems with these assets.

What if something goes wrong?

Strategic Planning for Very Small Businesses: Using Big Business Tools to Get Big Results for Small Business, Real Estate Entrepreneurs' Edition
Strategic Planning for Very Small Businesses: Using Big Business Tools to Get Big Results for Small Business, Real Estate Entrepreneurs' Edition

You should be very happy to discover a book that takes a practical small business perspective for strategic planning and real estate plans.

What Can Go Wrong?

The overwhelming reason that most individuals and small business owners engage in any variation of planning is because of some underlying uncertainty about what is going to happen. A contingency business plan is a specialized approach that takes a different perspective. This kind of business planning focuses on "what if" scenarios so that when or if something goes wrong, the next course of action has already been evaluated and can be pursued without further delay. This perspective has proven to be especially helpful and successful for small businesses attempting to navigate through the murky waters surrounding troubled banks and commercial loans.

The use of real estate plans for either residential or commercial real estate is not something that everyone is prepared to do. You might believe in the principle of real estate planning but don't have a clue about where you should begin. One element that should be helpful for anyone who feels that way is to learn more about business planning in general.

As important as planning is to business and real estate, it is rarely easy. Here is a book that will help.

 

The Importance of Plan B

Always have a Plan B — a Plan B mentality should improve results in many business areas. Small businesses have often overlooked the value of contingency business plans. For commercial loans this requires identifying realistic financing alternatives in advance of actually needing to make a change.

Commercial Financing in Need of a Plan B - High Priority Contingency Business Planning

Several kinds of business financing are literally required for most small businesses to continue operating. For a small business owner not currently experiencing financial problems with their bank or other lender, it is often difficult or considered a waste of time to ask "what if" questions about their funding sources. Nevertheless it should be realized that many unforeseen economic changes have taken place during the past few years, and some of these factors are resulting in surprises even for the healthiest business. Although it might appear to some that there is not a current need to identify new sources for commercial loans, the small business finance areas noted below are especially prone to unexpected lending decisions by banks in the present commercial lending environment.

  1. Refinancing for commercial real estate loans. This need can develop quickly and unexpectedly when there is a "recall provision" in the original loan agreement. The value of a "Plan B" is especially relevant to more specialized commercial financing (two key examples are golf course financing and funeral home loans).
  2. Working capital financing and lines of credit. Many banks have been systematically eliminating all forms of working capital funding, and in most cases they have provided very little advance notice to commercial borrowers.

Reverse Mortgages

In this case, the preferred plan should be to avoid using a reverse mortgage at all costs. Do your homework! The only favorable reports about reverse mortgage financing originate with parties that profit from making a reverse mortgage to unsuspecting seniors.

Plan to Avoid Reverse Mortgages
Plan to Avoid Reverse Mortgages

Reverse mortgages provide an excellent example of a financial product that is NOT cost-effective except for the financial agent selling it. My recommendation: senior citizens should AVOID all variations of a reverse mortgage.

— Stephen Bush
Business Plans
Business Plans

Real Estate Problems Will Not Solve Themselves

Real Estate Plans Are Part of the Real Estate Solution

Yes, there are some serious problems currently impacting our entire economy. While better real estate planning is almost certainly a part of any effective business solution, real estate plans will not fix everything that is wrong in the financial picture.

Real Estate Plans Involving Lenders

Detailed evaluation of banks is a key real estate planning area that can produce significant benefits as well as eliminate serious financial risks. Unfortunately, there are more "problem banks" and "Zombie banks" still operating than realized by most individual and business borrowers.

A Poll - Your Opinion, Please!

Both residential and commercial real estate planning involve looking ahead, asking questions about what might happen under different scenarios and then making an evaluation of what should be done based on projections. It is rarely an easy process, so many people fast forward through some or all of the steps. Perhaps you have skipped some recommended steps yourself in past real estate purchases. Of course, real estate plans should also have an ongoing role after the initial purchase as well.

So please give us your opinion about the importance and value of real estate planning in the poll below. Thanks!

How important is it to include (and complete) real estate plans as part of either residential or commercial real estate purchases?

See results
Commercial Loan Planning
Commercial Loan Planning

A Reminder: Contingency Business Plans

Plan B

Always have a "Plan B."

As helpful as this will prove to be for small businesses and individuals, in some cases a "Plan C" and "Plan D" might also be appropriate.

What Can Go Wrong?

Let Me Start With Banks

The prudent planning strategy of evaluating what might go wrong (while hoping that nothing bad happens) probably makes more sense to many small business owners today than it did prior to the financial chaos beginning during the 2006-2008 time frame. I have been actively providing help regarding contingency business finance plans for many years, but I did encounter substantial resistance to the strategic use of this approach until actual events demonstrated the wisdom of doing this.

The fact that some major things have gone very wrong in recent years in no way reduces the likelihood of there being more business and financial uncertainties as we move forward. An area that continues to deserve special attention and precautions is the banking environment. Well before the financial crisis, I was helping commercial borrowers to assess what could go wrong with their commercial financing agreements and what to do if and when that happened. I continue to feel that banks are still in a precarious state, and particular care is still needed with all services that involve a bank.

Another Plan B Reminder
Another Plan B Reminder

Okay, I guess we have to turn to plan B.

What's plan B?

Why wasn't that plan A?

— Some Practical Wisdom About Planning from "The Big Bang Theory"
Thanks for Visiting Real Estate Plans — All images provided under End User License Agreement to Stephen Bush
Thanks for Visiting Real Estate Plans — All images provided under End User License Agreement to Stephen Bush

© 2012 Stephen Bush

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