Website design By BotEap.comLet’s take a look at some of the risks of real estate development. Undertaking your first real estate development project is more demanding and riskier than buying your first investment property. But while there are more things that can go wrong, there is also the opportunity for greater rewards. I think the biggest risk to the first time developer is inexperience or lack of knowledge.

Website design By BotEap.comThe good news, however, is that with the help of experts and specialist advice, you can overcome the risk of inexperience or lack of knowledge and avoid common pitfalls.

Website design By BotEap.comThis will speed you up on the path to becoming a successful developer. Now let’s take a deeper look at what I call the Big 11 Risks.

Website design By BotEap.comRisk 1 – Inexperience

Website design By BotEap.comThe key to eliminating this risk is to always make sure you have the input of a professional property development specialist, especially on your first projects. Not having this assistance could affect your ability to borrow funds. My company has helped many real estate developers to start their careers, putting them on the right track from the beginning and helping them to be great.

Website design By BotEap.comRisk 2: debt risks and interest rate risks

Website design By BotEap.comWhen borrowing funds, you should be aware of the possibility that interest rates will increase during the term of your development or the long-term tenure of your investment. This can lead to higher development and maintenance costs. However, this need not be a cause for concern, as the actual increase may not be too high. Of course, at the other end of the scale, you could also increase your earnings if interest rates go down.

Website design By BotEap.comRisk 3 – Market value risks

Website design By BotEap.comBased on the fact that property values ​​can go up or down, you cannot be sure of the value of your project after completion, or even how much demand there will be if you decide to sell. Smaller and faster deliveries will be less risky and there will be less time for values ​​to fall. But in general, property values ​​increase more often than they decrease, and in the long run, if you keep some of your properties, you will make money. Property values ​​would have to fall about 15% before you tend to lose money.

Website design By BotEap.comRisk 4 – Risks during construction

Website design By BotEap.comThere are several reasons why construction costs can increase. Disputes, unexpected delays caused by shortages of labor or materials, and bad weather can delay the construction period and lead to increased retention charges. Using a one-time, fixed-price, lump sum contract can help decrease the risk that construction costs will skyrocket, as well as ensure that you conduct due diligence with the builder before hiring them.

Website design By BotEap.comRisk 5 – Financial risk factors

Website design By BotEap.comThe main risk here is not having enough additional capital as a reserve or contingency fund, in case costs rise more than anticipated. I think it is important that you allow and retain a contingency fund for when this happens. Property development involves financial risks and the sooner you realize and understand these risks, the sooner you will be successful as a property developer. As a general rule of thumb, I work with a 5% contingency buffer on all my projects. As I mentioned, you will run into trouble as it is part of the nature of the beast, but a buffer will help ensure they don’t undo it.

Website design By BotEap.comRisk 6: risk of not conducting thorough due diligence

Website design By BotEap.comHaving a complete due diligence checklist is essential. Due diligence must be done before purchasing your property. To avoid buying a property that will cause you long-term problems, you need to review your list thoroughly, including all City-related details in terms of planning, engineering, builder, and financial analysis.

Website design By BotEap.comRisk 7: paying too much for the site

Website design By BotEap.comIt is true to say in the real estate business that “you make a profit when you buy the site.” Knowledge of the market, especially in the area of ​​land values, along with the ability to negotiate a good deal, are important assets when it comes to ensuring a correct purchase. Study your market and area wisely; keep your ears to the ground and keep your head out of the clouds. It will prevent you from burning your cash.

Website design By BotEap.comRisk 8: underestimating costs

Website design By BotEap.comGetting an idea of ​​the costs involved relative to the revenue side of the feasibility study (sales), from real estate agents and valuation specialists is reasonably easy. However, controlling expenses is much more difficult, especially if you are new to the game. You should be well aware of all costs related to development income and expenses and how much to allow for each. If you are knowledgeable about your costs, you will be less likely to underestimate them.

Website design By BotEap.comRisk 9: set your borrowing limit

Website design By BotEap.comDon’t make the mistake of borrowing at maximum capacity, as this leaves you no room to move in case unforeseen circumstances arise, such as interest rate hikes, sales slowdowns, or construction delays. Know your loan limit and stick to it.

Website design By BotEap.comRisk 10: Involving the wrong consultants

Website design By BotEap.comIncreasingly, clients are calling me to see poorly designed plans. Approximately 95% of these plans were designed by cartoonists, and the money the client saved by using less skilled designers nearly doubled and sometimes tripled in additional costs associated with construction issues and time delays. If you pay qualified people to do your work, the result will be a satisfactory result, and ultimately you will spend less money and make more profit. An architect takes an average of five years to complete a degree and two more years for registration, compared to three years in total for a draftsman.

Website design By BotEap.comRisk 11: disputes with commercial and construction contractors

Website design By BotEap.comDisputes with construction and commercial contractors can cause lengthy delays, which strain the budget as the developer has to cover late costs. When contractors quit prior to completion, a replacement contractor must be found and, in most cases, contractors called midway are more expensive. This is because the developer’s bargaining power is weak and the contractors know they are in a tough spot.

Website design By BotEap.comSummary

Website design By BotEap.com• I think the biggest risk to the first time developer is inexperience or lack of knowledge

Website design By BotEap.com• If you pay qualified people to do your work, the result will be a satisfactory result, and ultimately you will spend less money and earn more profit.

Website design By BotEap.com• Know your loan limit and stick to it.