Of all the investments you can make, nothing is quite like participating in a new real estate project or development venture. While it can carry great risk, it has the potential for lucrative returns. While you can’t invest with 100 percent certainty, doing your research can increase the likelihood of success in the future.
Analyzing the Situation
In these situations, there are some unique things to consider. Remember to be as objective as possible and to gather all of the details before making a choice on how to proceed.
- Master plan. Start with a plan; whether that’s a vacant parcel of land a developer wants to make a neighborhood or an existing condominium that you want to expand, there needs to be a clear plan from the start. If there’s any room for interpretation, you’ll quickly find that disagreements arise and delays will ensue.
- Human capital. You often hear savvy investors say you invest in people, not ideas. This is especially true when starting a new construction project. You should consider who you’ll be working with and if you trust them. Are they skilled at what they do? Do they have proven results? Reliable contractors, project managers, architects, and workers are irreplaceable.
- Quality of construction. As an investor, you can’t afford to ignore the quality of your construction. This can make or break your investment – from both practical and legal standpoints. Aim to work with contractors who use high-end equipment from reputable companies like Pro Torque Tools. An investment in quality from the start will likely pay off in the end.
- Cost of construction. While quality definitely comes first, don’t forget about cost. Construction companies are known for charging drastically different prices for the same project. Your choice to go with one company over another could mean a huge difference in the final price tag. When analyzing proposals, ask for detailed information regarding the cost of materials and labor to see what the proposed figures are tied to.
- Risk factors. You should also deal with potential risks head-on. What will the challenges be and can you overcome them? For example, does the projected price point for a new neighborhood development make sense for the community? If the average income in the area is $50,000 per year and the suggested selling price is $1 million plus, something’s clearly wrong. You can have a great idea, reliable contactors, and quality materials, but it’s not going to work. Some risk factors are enough to stop an investment in its tracks, while others simply require further investigation; determine which category your risks fall under.
Making a Decision
Making the final decision is up to you. Evaluate whether you feel comfortable investing your money, or if the risks seem to outweigh the return. Remove any emotion or bias, and base your decision on facts and information. Once you’ve done this, you’ve discovered the key to becoming a successful real estate investor.