Most people seem to think of real estate first when they think of investments. Perhaps that’s because real estate investment is one of the strongest forms of investment out there! It’s certainly one of the most attractive forms of investment, and it’s easy to see why. For a lot of people, it seems like a fairly simply thing. You find a property you think has great prospects, check out the viability of the neighborhood and the surrounding amenities, then you invest. Then you wait around for a few years and bam, you sell that property for a tasty profit.
Of course, things aren’t quite that easy. But still, that doesn’t seem like enough of a challenge for some adventurous investors – nor does it seem like the best way to make big bucks off the property market. Well, those intrepid investors may be onto something, because real estate development is something that could definitely see sky-high profits.
Successful real estate developers are among the wealthiest people on the planet; some of those ultra-wealthy real estate developers are among the most famous people around, and at least one of them is the current President of the United States. So there’s definitely a real thrilling element to this endeavor – but how do you get it right?
We’re going to take a quick look at some of the most essential things you need to consider if you’re thinking about getting into real estate development.
Real estate investment and real estate development are two completely different beasts! Don’t go jumping into this without deepening your knowledge about investment, construction, business law, property types – among other things. There are loads of books out there dedicated to this subject, and it’s recommended you pick up a few of them. You should also consider doing some research into the beginnings of many successful real estate developers. This is useful, though remember that the real estate business has changed quite a lot since many of the biggest names got started in their business pursuits.
The type of real estate development
So you’re confident that you want to get into real estate development. But what type of development are you going to work on, exactly? Some people who are interested in this endeavor haven’t quite gotten as far as this in their thoughts; if you’re one of them, it’s time to look through the options!
Residential real estate is the most obvious type here. If you’re interested in this, then you need to know what type of housing is most popular in the area you’re scouting. If you’re in a city, then you’re probably going to want to look into condos – a series of apartments in the same building. Most people in the city are there for work, but don’t want to spend a lot on an entire house. Fewer people are buying homes these days, so this is worth keeping in mind even if you’re not so close to big cities.
Commercial real estate can be the easiest when it comes to design, but you also need to consider what kind of businesses you want to attract to the property. Standard offices will be fairly simple, but even then you need to make sure there’s actually demand from viable businesses for this kind of real estate in the area you’re interested in.
Working the land
So you think you’ve found a nice bit of land for some real estate development. But are you absolutely certain? These things are fairly difficult to tell with the naked eye. Just because someone is trying to sell you a piece of land as perfect for real estate development, you have to ask yourself a question: why hasn’t anyone developed real estate here, yet?
It could just be that you were lucky enough to stumble upon a prime piece of land that others hadn’t even considered. But don’t just assume this. Before you start buying land, get the land in question surveyed. You need to ensure that the ground is safe to work on, or that it’s level, or – if it isn’t level – if it can be leveled.
You may also want to look into landscaping to ensure that the land is ready for construction. Unless you’ve been hiding a landscaping degree (and a truckload of resources) from us, we’d advise you to work with professional landscapers. Bear in mind the type of land you’re dealing with, because this will determine what kind of landscapers you should be working with. Places in the southwest of the United States, for example, may require the expertise of desert climate landscape design.
You may only want to take this task on as a solo venture, something that doesn’t have any brand attached to it. In this sense, though it’s a daunting task, you want to keep things as fluid as possible, without many formalities surrounding things. You may only ever be planning to build this one development instead of continuing to make more afterwards.
But if you’re interested in developing real estate, you might not want to take this route. There are a lot of legal and financial difficulties you could get into that would be made more complex or even threatening to your personal life if you pursue the endeavor in this way. Your best bet might actually be to form a business entity for the project. You may think this would complicate things further, or even constrict what you can achieve. But the opposite might turn out to be true.
For one thing, forming a business will help secure your name to the properties you’re developing. It will also greatly reduce the risk you’re taking on. As you must know by now, real estate development is a big and risky investment! What if something goes wrong? There could be a turn in the market, or a natural disaster could cause devastation to the project. If you didn’t have the business liability protections and other insurance assets protecting you, the damages would hit your personal finances in a very big way. Tax breaks, strong insurance, limited liability, and a bunch of other protective means will prevent losses being quite so devastating if you form a business. It will also make marketing easier – and you’re going to need that to attract people to your properties!