Real estate and property development risks and their control is the major priority of professional developers, or maybe they never get to get involved in another development. I am continually amazed to find that the first thing most developers do is buy some land or property with some of their own cash and borrow the majority from the bank.
New developers getting control of the property seems logical, and yet it is the last thing a professional does. So starting a real estate and property development by doing the complete opposite to what you ought to do is putting yourself behind the eight ball from the day one and send the ‘risk’ indicator rising.
From a good point of view, a land is only worth what you can utilize it for, and that is determined by the Town Plan of your City and the particular zone applied to the area you are considering. For instance, if you were to buy a land that is zoned Rural and you want to develop some residential houses or townhouses, you won’t be able to do so.
If you purchased some industrial land and your plan was to develop some shopping on it, you won’t be allowed to do so by the Town Plan. Professional real estate and property developers learn the Town Plan, and also all the regulations that control the development activities in certain regions that are of interest to them.
Real estate and property developers don’t pay the lender of development finance every month out of their pocket. The interest is calculated on a monthly basis on the amount which a developer draws down from the lender. The interest is then added to the payback amount required at the end of the development. So by not being educated in the real estate and property development, a new developer is committing to a land without knowing exactly what can be developed on it and then purchases it with the wrong finance package. Putting yourself behind the eight ball twice at the very start of a development process is a terrible way to begin your development life.
Another real estate and property development risks to consider are market knowledge and the lack of a development system blueprint. Looking at the market knowledge, a lot of new developers don’t appreciate that they are actually a manufacturer. For instance, when you buy any product in a shop, it must have many features for it to be purchased and successful. It must be valued right for its target audience; it must be of great value, and it must do the job it is intended for; it has to be designed, and it has to be researched before being designed and many other sub items which make up the profile of any product.