It’s no secret that real estate is an excellent investment. Over the long term, it has always been one of the most reliable ways to build wealth. However, as with any other type of investment, there are risks involved in real estate development. If you’re not careful, you can easily make costly mistakes that jeopardize your entire portfolio.
The former CEO of ZMG Construction and a successful Longwood developer, Richard Zahn, suggests that new developers should avoid the following eight mistakes:
Mistake #01: Not Doing Your Homework
One of the most important things you can do when investing in real estate developments is thoroughly researching the market. You need to understand the local economy, demographics, and real estate trends well. Without this knowledge, making sound investment decisions will be very difficult.
Mistake #02: Underestimating The Costs
Projects can quickly spiral out of control if you underestimate the costs. When planning your budget, factor in all expenses, including permits, construction costs, marketing, and legal fees. Otherwise, you may end up facing financial disaster down the road.
Mistake #03: Choosing The Wrong Location
One of the most important factors in real estate development is location. You need to find a spot that is both desirable and achievable. If the project is too ambitious, it will likely fail. Conversely, it will be difficult to attract buyers or tenants if it’s located in a run-down area.
Mistake #04: Not Planning Ahead
Many developers make the mistake of starting construction without a solid plan. This can lead to costly delays and miscommunications. It’s important to have a detailed timeline and plan of action so that everyone involved is on the same page.
Mistake #05: Overbuilding
When developing a new project, it’s important to be realistic about the demand for housing or office space in the area. If you build too much, you could end up with a glut of inventory that will take years to sell. This can spell disaster for your business.
Mistake #06: Not Taking Into Account Local Regulations
It’s important to ensure that your development complies with all local regulations. Failing to do so can result in hefty fines and even jail time. You don’t want your project to be shut down before it’s even completed.
Mistake #07: Hiring Inexperienced Contractors
It’s essential that you hire qualified contractors who have experience in construction or development projects. Otherwise, you could run into problems with quality control or cost overruns. Do your research and ask for referrals from other developers in the area.
Mistake #08: Not Properly Screening Tenants/Buyers
If you’re renting or selling units in your development, it’s important to screen tenants/buyers carefully. Otherwise, you could end up with bad tenants who damage property or stop paying rent/mortgage payments. The last thing you want is for someone to default on their loan and bring down the value of your investment.
Real estate development is a sound investment, but it’s not without risks. If you’re not careful, you can easily make costly mistakes that jeopardize your entire project. To avoid problems, be sure to do your homework, factor in all costs, choose the right location, plan ahead, and hire experienced contractors. Additionally, screen tenants/buyers carefully to avoid defaults.