By Did you know that the global property development market stands at $148.85 billion?
The real estate market is one of the most popular investment opportunities. It’s lucrative and safer than other investment options like stocks.
But, property development is quite complex. You may end up losing your hard-earned money in real estate if you’re not careful.
The good news is that most real estate investors make a killing in this industry. You, too, can succeed in property development with proper guidance.
Read on for top tips on how to develop a property.
- Find the Right Property
This is the most critical step in the land development process. Ensure you find commercial land that’s suitable for its expected purpose.
Consider factors like location and access to vital infrastructure when choosing a site. Remember, potential buyers or tenants will consider these factors in the future.
Also, ensure you consider what a site has been zoned for and whether it aligns with your vision. Think of all the reasons not to buy the property.
While this may be a bit unorthodox, it’ll help you identify potential drawbacks. This will help you plan better and avoid mishaps once development starts.
- Determine the Cost
After finding the right site, get an estimate of the total development costs. It’s essential to note that your land’s buying price is only a fraction of the cost.
Consider other expenses like permit fees, environmental analysis, and soil testing costs. You can also ask contractors to bid on your project at this stage. That’ll give you a rough estimate of your total cash outlay.
- Determine Feasibility
It’s vital to realize that not all projects are worthwhile investments. That’s why you must determine a property’s economic feasibility.
You’ll need to compare total costs to the expected revenue. Be sure to incorporate expenses like marketing costs into your calculations.
Then, calculate your property’s expected rate of return. A positive rate of return implies a profitable investment. But, it’s important to note that the nominal rate of return does not always give an accurate picture.
You may need to hire a professional to account for inflation and provide a clearer picture.
- Determine Financing
Your intended purpose for buying land will determine your financing options. Most lenders consider the loan-to-cost (LTC) ratio when deciding whether to lend money.
Ideally, your development project needs an LTC ratio of 80% or less. Most lenders only offer joint venture funding for real estate development. So, property developers need to be ready to finance at least 20% of their projects out-of-pocket.
- Start Construction
You’ll need to engage professionals like surveyors and architects in this stage. They’ll help you plan for the optimal use of your property.
You’ll also need to hire a town planner to help you with building permits. Your planner will guide you on when best to submit applications to minimize delays. Remember, the longer the delays, the more costly your development project.
Learn How to Develop a Property by Following These Tips
To be successful in real estate, you have to know how to develop a property. Luckily, this article has you covered. It provides tips that’ll help you from the moment you choose to buy land.
For more insightful articles on a range of topics, be sure to check out more of our blog.
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