A few important points worth considering include how much capital you have at your disposal, whether you’re capable of managing multiple properties yourself, and how you’re likely to fare given the current state of the real estate market. Will your property development business become your full-time job, or will it be a part-time enterprise meant to diversify your income?
Keep your goals realistic when you’re first starting out and build your portfolio (and your reputation) one property at a time. Setting your sights too high could prove to be a costly mistake. The simplest way to break into the business is to buy a house, fix it up, and sell it. From there, you can move onto bigger, more expensive properties. [2] X Research source
Always take the population of the area you’re developing into account. It’s important to plan your property with your likely buyer or renter in mind. If you live in an area with a lot of older residents, for example, it will make more sense to build easily accessible single-story homes or condos than lavish multi-level buildings, even if they’re what’s fashionable at the moment.
As with any other type of loan, you may have to show proof of credit or provide collateral in order to be considered a safe investment. Some banks may even ask you to put down a deposit of around 15-20% of the total projected development cost. [5] X Research source It takes a lot of money to buy and refurbish commercial and residential properties. Unless you have a considerable amount stashed away in savings, you’ll probably need to rely on outside financing to some degree. Put some thought into your proposal and determine whether it’s one that has a shot The bank may choose not to approve your request for financing if they feel that they’re taking too much of a risk. [6] X Research source
How much you’re willing to pay will depend on things like the economy, location, and projected value of the finished property, so it will differ from project to project. The property development business is a lot like gambling—it’s better to win small but often than to wager the whole pot and lose it all.
The vast majority of new developers prefer to buy to lease. This way, they have a steady stream of income that they can count on, which can in turn be put toward future projects. When buying to lease, aim to make up 10% of your initial investment in annual rental fees. When buying to sell, it’s best to ask for at least 30% of the total amount you paid for the property in order to justify your expenditures. For example, $150,000 in annual earnings is enough to keep a $1. 5 million rental property afloat. For a one-and-done development that you’ve sunk $4 million into, you’ll come out on top as long as you don’t sell for less than $1. 2 million. [8] X Research source
There are countless other intangible factors that can prevent a property from producing the way you expected it to, including changes in the economic climate, and unforeseen structural issues. These factors are often difficult or impossible to plan for.
Keep an eye out for affordable locations that are near schools, prominent businesses, shopping centers, and other places that are likely to attract buyers. A common mistake made by rookie developers is to look at places that are already thriving and attempt to squeeze in there. Keep in mind that the bigger the boom, the less opportunity for expansion there will be. [11] X Research source
Consider hiring a real estate agent to help you track down and mediate buys. They’ll often be privy to the seller’s reason for parting with their property, which can give you an advantage when it comes time to make an offer.
Ask the current owner any questions you may have about considerations like zoning, maintenance, and taxes. Take a few days to sleep on your decision, if necessary. Once you’ve found the perfect property, don’t hesitate to sign your name to the dotted line.
For single houses and smaller projects where it would be financially impractical to recruit outside help, you can save on fix-up costs by performing basic repairs and renovations yourself. When it comes time to sell, price the property fairly according to the improvements you made. Be willing to negotiate within reason to reach a sum that’s close enough to your asking price for you to live with.
