Real estate development is a risky business, and there are many areas where you can run into trouble. According to Richard Zahn ,you have to ensure that you’re properly financing the project and that you’ve got enough cash on hand. You also need to be sure that your plan for the project is solid and that you’re not getting involved with family or friends who don’t share your vision. If these things aren’t taken care of before starting any new project, it’s likely going to lead to disaster down the line.
Risk 1: Not having enough cash
There are many risks that come with real estate development, but the top risk is having too little cash on hand. Cash is king in real estate development because it’s needed to buy land, build the project, and pay for marketing and sales. It’s also necessary for maintenance, repairs and other unexpected costs during the course of construction. In order to protect yourself from these risks you should have enough money set aside to cover them all.
Risk 2: Getting financing too late
Lenders are reluctant to lend to borrowers who are already in default. If you miss the deadline for applying for a loan, then you could find yourself in a tough situation.
If you wait too long, it may be impossible to get all of your financing in place before construction begins on the property. And that could lead to further delays if you have to stop work temporarily while waiting for more money from lenders.
Risk 3: Not having a plan for the project
- Not having a plan for the project
It may seem obvious, but it’s important to have a clear plan for how you want your project to look at the end of its construction phase. This includes an outline of what steps will be taken and when, as well as how you’ll communicate with contractors and subcontractors during that time frame. If there are flaws in your plan—or if your goal is unrealistic—you could run into trouble with delays or even lawsuits from contractors who aren’t getting paid on time or at all. To avoid these risks:
- Make sure everyone involved has bought into your vision; this not only ensures everyone will be on board as much as possible throughout construction but also helps ensure nothing gets overlooked by accident
- Remain open to new ideas and suggestions from others; although some may seem silly or impractical at first glance, they might actually help improve the final product!
Risk 4: Doing business with family or friends
The fourth risk is doing business with family or friends. When you work with someone you know, it can be difficult to set boundaries and hold each other accountable. You need to have a clear understanding of what is expected of each party and how conflicts will be resolved before committing to the project.
If you don’t do this, there is a good chance that your relationship will suffer irreparable harm or end completely.
The real estate development business is a great way to earn money and build wealth. However, there are many risks involved with this type of investment. If you do careful planning and take the time to understand these risks before beginning your project, then you can avoid getting into trouble with them as well!