Inflation problems have made it harder to close commercial real estate deals in the past few years. Securing land loans for bad credit has also become challenging. But now that the worst is over and interest rates continue to decline, CRE investors are becoming optimistic.
The US commercial real estate market will be worth $25.37tn by 2024. This projection shows a remarkable 2.66% annual growth rate (CAGR 2024-2028), which will boost the market volume to $28.18tn by 2028.
Among the notable developments in CRE is the increasing demand for flexible office spaces, thanks to the need for adaptability and the continued rise of remote work. As lenders reduce borrowing costs, more apartments are being constructed, too.
That said, even as inflation drops, it’s still important to observe market trends and explore different financing options and property management systems to increase the value of your CRE investments.
Having a business plan has never been more critical. When you have a concrete roadmap, you can proceed confidently and cautiously, avoiding the trap of bad investments.
A business plan helps you stay organized and updated on market research to keep up with the changing conditions of the CRE playing field. It can also give you insights into aligning.
Opportunities with your investment strategies. Plus, a business plan could increase your eligibility for land loans for bad credit.
What is a CRE business plan, and why do you need it?
Simply put, a marketing strategy for commercial real estate is a detailed document showing how you intend to operate your property and make a profit. It contains specific details about your investment strategies, timelines, and goals, with a comprehensive road map for making informed investment decisions down the line.
In addition to serving as your guide, a commercial real estate investment business plan shows how serious you are about your investment—it makes your intentions more transparent and more authentic in the eyes of business partners and prospective investors.
Private commercial lenders, banks, and other CRE lending institutions will also want to see this plan before they provide funding. With a CRE business plan detailing your long-term vision, you can give them the assurance they need to grant you land loans for bad credit.
Ultimately, your CRE investment business plan should give your target audience the information they want to see. It should tell them who you are, how you plan to use their loan, your prospective challenges, and how to overcome them.
What should be included in a CRE business plan?
1. Executive Summary
Summarize the contents of your report into one opening. The executive summary should highlight everything a lender must know at a glance, particularly the details they can expect to see in the other sections.
A high-quality CRE business plan has these 7 points in the executive summary:
- Company name, including the structuring entity
- When your company was founded
- Where your company is based
- The principals or owners
- Your specialization or investment area of focus
- Education, experience, and other reasons why you are qualified to invest in this type of property
- Your mission statement
This section is like a summary. Because it needs to clearly and succinctly show your main points, writing it last once you finish organizing the other information in your plan makes sense.
2. Business model / organizational structure
This section may be brief, but it’s crucial to a CRE business plan. It should show:
- Information about your team – Who are the key players in the CRE project? What are their roles?
- Your legal structure – How is your company established (sole proprietorship, LLC, etc.)?
- Your values/guiding principles – What philosophies will shape your investment’s direction and growth?
3. Market analysis
In this CRE investment business plan section, you must demonstrate a deep understanding of the local commercial real estate market. It would help if you also communicate your project’s competitive positioning.
An effective market analysis section includes:
- Demographics and specific data about your niche market
- Analysis of potential challenges and revenue opportunities
- Current supply and demand in your market and potential changes
- Identification of primary and secondary competitors
Consider doing a SWOT analysis to compare your projects against competitors. This approach lets you highlight the unique business attributes that may affect your investment.
It also encourages you to think creatively and develop strategic plans for your CRE project’s future growth and adaptation. This analysis highlights where the project stands, areas for improvement, and potential advancement opportunities.
Ultimately, this section showcases your extensive CRE industry knowledge and ability to discern your prospective investment’s characteristics.
Demonstrating these skills is a great way to reassure lenders that you are competent and a viable candidate for land loans, even if your credit score could be more favorable.
4. Financing strategy
This section outlines all the financing methods you plan to use, including your investment or company’s financial projection.
While you need to make educated guesses and assume you will get your desired land loans for bad credit, you can always review, update, and reflect on the numbers as you go.
Just ensure this section contains the following documents:
- Income vs. expenses (Profit and Loss Statement)
- Cash flow statement
- Net worth vs. debts and liabilities (Balance sheet)
5. Lead and acquisition strategy
This section discusses how you intend to find new acquisition opportunities. Lenders want to know whether you are wholesaling or hiring a real estate broker.
Describe how you plan to source potential properties, the criteria you use to evaluate CRE asserts, and what methods you intend to use to complete these transactions.
6. Exit strategy
Your exit strategy will influence every investment decision—from the initial purchase to the property’s final sale.
Describe how you plan to conclude the investment period through options like a cash-out refinance, a buy-and-hold approach, or a 1031 tax-deferred exchange. Specify the indicators that will prompt you to implement your chosen exit strategy.
This section outlines your marketing plan for attracting new properties and tenants. It should also include details about your strategies for ongoing property management.
7. Goals and objectives
Clearly define your investment goals for the short term (the upcoming year) and the long term (up to five years). If you’re applying for land loans for bad credit, lenders will want to assess your investment objectives to gauge your eligibility and the feasibility of your strategies.
Use the insights from your market analysis to establish specific goals. List them along with the metrics you will use to measure success. Make sure that your objectives are practical and grounded in your market research. Detail the strategies you plan to employ to achieve them.
Also, describe your vision for overall investment success. Explain what success looks like for your venture, including financial targets, property acquisitions, tenant relationships, and portfolio expansion.
Critical considerations for writing a CRE investment business plan
1. Create a specific niche.
Develop a specific niche for the investment strategy instead of competing in several real estate segments. This is particularly helpful if you are new to CRE investing or a small investor.
You could focus on a particular property type and diversify your portfolio once you have gained traction. Alternatively, you may concentrate on only one segment where you have an optimum advantage.
2. Identify the risks.
Economic fluctuations, regulatory changes, and unpredictable market dynamics can impact your investment’s performance, making real estate investing inherently risky.
While researching for your market analysis, take the time to make a detailed risk analysis to learn more about these factors and how they can impact your investments.
Assess economic cycles, location-specific risks, and occupancy or tenant issues so you can think of strategies to mitigate them if they occur.
3. Connect with other CRE professionals.
Build strong relationships with contractors, brokers, and other commercial real estate professionals to gain valuable insights into your target markets.
Be sure to include how you will make the most of these relationships, such as timelines for contracts, in the plan’s milestones section.
Additionally, stay up-to-date on your area’s regional economy. Explore the tax climate to understand the prevailing market dynamics and see if your investment strategy aligns.
4. Ask for help with financial details.
Even if you are confident about your financial knowledge, third-party support can still be valuable, especially in accounting. A CPA will walk you through complex tax issues that could impact your projections. If you plan to hire one, include it in your expenses.
5. Your credit.
If you have bad credit, prepare to explain why you are in that position. This is particularly important when applying for land loans for bad credit. Lenders want to know the reasons that caused your credit score to drop—whether it’s construction delays, market downturn, etc.
Prove that despite your low credit score, you have the necessary resources to complete your project. Remember to highlight your strengths, such as your experience and strong liquidity.
Secure a land loan even with bad credit.
At Private Capital Investors, we help commercial real estate investors secure land loans for bad credit. For information, email info@privatecapitalinvestors.com or call 972-865-6206.
