Real estate development is one of the more exciting and sexy business pursuits that are out there, but it’s also one of the most challenging and complex. For entrepreneurs to succeed in this sector, they need to know more than a thing or two before getting started.
While this list is certainly not everything there is to know about the business of property development, the following serves as a summary of some of the fundamentals that aspiring real estate developers should keep in mind as they get started.
Know the Market
Being an accomplished property developer requires an intimate understanding of the local real estate market. It’s no coincidence that Ziel Feldman, founder of the successful firm specializing in real estate development HFZ Capital Group, is also a native New Yorker with decades of experience working in the New York real estate market. By the time Feldman started HFZ in 2005, he had the insights and instincts needed to succeed as a Big Apple real estate developer.
Identify the Challenges
Experience in a particular real estate market is key to identifying the common challenges developers will face. Knowing these challenges ahead of time enables developers like HFZ to better assess the cost-benefits of a potential project. Those who fail to take common obstacles into account are more likely to be caught off guard by deviations from their risk assessments.
Understand the Importance of Underwriting
The process of underwriting is what makes it possible for financially risky business ventures like real estate investment and development to succeed, and exceptional underwriting abilities are an asset that makes it easier for a firm to forge business partnerships. By forming these partnerships, businesses can branch off into unfamiliar markets. For example, HFZ recently partnered with Reich Brothers, a firm specializing in industrial real estate, to purchase distribution centers across the country. HFZ provides underwriting analytics while Reich provides market intelligence. Combined, both firms accomplish things they otherwise couldn’t do on their own. In short, real estate developers that lack in-house underwriting services will need to find it elsewhere.
Build Key Relationships
Real estate developers have to work with numerous outside services and institutions. This includes lenders, vendors, architects, general contractors, and government officials. The best real estate developers build strong relationships with these people and other entities as existing relationships streamline the process of bringing everyone back together for the next big project. It also gives developers more room to negotiate.
Property development setbacks come in all shapes and sizes. Unlike real estate investment challenges, which are relatively standard and predictable, setbacks are almost impossible to anticipate in real estate development. It could be a destructive weather-related incident, union strike, zoning issue, lawsuit, or a pandemic-induced pause in construction.
So how can you prepare for setbacks when you don’t know what will happen? Focus on the common denominators that result from setbacks. Almost all setbacks lead to two things: cost overruns and falling behind schedule. Have a contingency plan for these unwelcome consequences. In doing so you’ll be better prepared when setbacks strike.
Many entrepreneurs find themselves drawn to real estate investment and development. It’s certainly an exciting and invigorating business venture, but it’s also risky and fraught with difficulties, both expected and unexpected. Be mindful of what you’re getting yourself into and respect the value of knowledge and experience in pursuit of profit. Will this guarantee your success? No, but it certainly makes it mor