Overcoming Risks Associated with Real Estate Development

By: navjeet kaur

Proceeding with your first property development project requires careful examination as the process involves higher risks as compared to buying a first property. Although, the chances that things can go wrong are more, the opportunity to receive increased rewards is also more. On a positive part, the help of experts and advice of experienced professionals can assist an individual to eliminate some of the risks associated with realty development, including the following.

Interest rate and borrowing risk
When you apply for funds, you need to be familiar with the possibility of increase in interest rates during the period of your development. As higher rates can make your financing venture a costly one, you might have to deal with higher holding costs. However, this need not be a major concern because even if the rates increase, they would not soar to an extremely high value. Moreover, having updated knowledge of market trends will allow you to cope up with increasing interest rates if the market experiences the same at the time of realty construction. Conversely, you can enjoy bigger profits if the interest rates are low.

Market value risks
Property value experiences fluctuations quite often. Considering this, you cannot be sure of the value of your property on completion or how much would its market value be when you plan to sell it in future. Quicker, smaller turnarounds can involve less risk as in such a scenario there would be less time for real estate market values to fall. But usually, land values rise more than they depreciate and you can expect profitable returns in the long run when you own one. Real estate values need to go down by nearly 15% before you lose money.

Construction risks
There are many reasons behind increase in building prices. Bad weather, unexpected delays due to material shortage can interrupt the construction and can lead to higher holding charges. Utilizing a lump sum fixed value can help minimize the chances of rise in building costs. Make sure that you conduct in-depth research on the constructor before opting for his service.

Financial risks
One of the major risks associated here is not having sufficient funds at the time when costs increase more than you have initially expected. To deal with this challenge, it is vital that you retain enough finance when you encounter this situation while working on your project. For a fact, financial risks are more likely to appear at the time of real estate development, it is wise to understand these pitfalls as soon as possible in order to become as successful as a realty developer.

Underestimating the costs
Knowing about the costs associated with income from realtors and valuation experts is easy. Conversely, getting idea of expenditure costs is relatively difficult, particularly when you are new into this industry. Make sure to be well versed with the costs related to income and expenditure. Being well-aware of these prices, there are fewer chances that you underestimate them.

Investing in land is one of the biggest investments a person makes in his lifetime. To make the most out of this costly venture, ensure to overcome these pitfalls.

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