How to successfully invest in the construction of properties for sale?
Given the increased interest in buying real estate, more and more people see this opportunity to earn financial gain and decide to build real estate for sale. Although building and selling of real estate seems to be a very cost-effective and easy way to achieve the financial goals of an individual or a group of investors, this may pose a significant headache and cause great difficulties if the investor starts the business without comprehensive and quality preparation.
When investing in the construction of real estate for sale, one should be very careful and take right and timely steps to make the investment really worthwhile. Every investor in the project for the construction of real estate for sale enters with the aim of making the repayment of the financial resources as fast as possible. In addition to returning invested funds, the investor certainly expects the financial gain or surplus of funds that will earn with the sale of the built real estate.
If such a large and risky business does not bring significant financial benefits to the investor, the question is the meaning of starting it. Of course, such situations should be avoided and familiarized with good practices to make your investment venture as successful as possible. If you own a certain capital and you are inclined to enter into the business of building one or more real estate for sale, some of the guidelines below may be helpful to you.
Get acquainted with the steps of building real estate for sale
There are several steps you need to undertake to build real estate suitable for sale and profit making. The first step is to conduct a research on real estate market, market opportunities, potential traps and investment risks. In addition to information about the market you are gravitating, it is important to collect information about the design and construction costs.
During the initial steps as an investor, you should consult with authorized architects and construction contractors on the cost of their services. Also, if you know someone who has already passed this process, his experience will certainly be of help.
Do not hesitate to seek advice or opinion from local investors who are or might be your competitors. Aside from giving them the opportunity to demonstrate their work accomplishments (as most of them do) and obtain a lot of useful information about building standards, the advantages and disadvantages of competing real estate, administration, construction and sales problems as well as market opportunities, you will demonstrate a good will to establish a relationship with the competition. Establishing good relationships with real estate market rivals can only be useful in the future.
In addition to informal contacts with acquaintances, competitors and licensed experts such as architects, construction engineers and real estate agents, it would be wise to inform the local offices of spatial planning and construction in detail about the sequence and duration of administrative procedures necessary to ensure the legality of the property you are planning to build.
Since administration is one of the factors that can complicate and often slow down the investment process, it is important that you are familiar with all the steps of an administrative procedure before you make an investment venture.
Familiarize yourself with the market opportunities associated with the area of investment in real estate
Before constructing a property, it is important to explore the real estate market well and get acquainted with the price trends for all the elements that are important when investing in real estate for sale. If you already own or have in mind the purchase of a land that you would use to build a real estate, you need to be informed if the construction of real estate at that location will be profitable, that is, whether the sale of real estate will bring you profit.
For beginning, decide on what characteristics of the land you want and create a list of desirable locations. Find out how the pricing of m2 of land moves at different locations. In general, the more attractive the location is, the price of m2 of land is higher.
Buying a more expensive land does not have to mean less profitability. In practice, it is often the opposite, i.e. investing in better (and probably more expensive) land can be profitable, as besides the price of land depends on its location, so the real estate price depends largely on the location.
Characteristics and location of the land to a large extent affect the cost of real estate. If the land is more suitable for construction and if it is located on an attractive location, it will be easier to realize a good real estate sales price. Also, it is important that you find a plot that will be of a size suitable for construction of real estate with exactly features you have planned.
Apart from land, the price that can be achieved in sales is affected by the standard of construction. Some construction standard do not always have to be suitable for any location. Therefore, before the start of construction, it is necessary to consider how the real estate will be built.
It is important to refer to the potential sale price of real estate of a different type in order to find out which type of real estate can achieve the best-selling price. This can help you with information about the trends in supply and demand on the real estate market. Such information indicates the types of real estate that are currently the most popular in the market and for which the sale can achieve the highest selling price. As a rule, you can easily find out by contacting one of the more serious local real estate brokerage agents.
In any case, it takes a lot of time to conduct research and not rush with the decision. The better you know the market opportunities, the more likely it is that your investment will ultimately be profitable.
Investigate potential pitfalls and investment risks in real estate construction
In addition to the opportunity, there are potential pitfalls and risks in the real estate investment market that could jeopardize your investment venture. They should not be neglected and should always be taken into account when making any investment decisions.
The cost-to-sales ratio is key to determining the profitability of the investment. Logically, the value of expected sales should be equal to or higher than the investment cost. Why would you enter into a debt and complex process of real estate construction if it does not bring any benefit to you? This relationship is influenced by various factors that have led to the calculation of the cost price and the calculation of the expected sales.
In addition, the relationship between the quality of the location and the chosen construction standard is also considered. The type and standard of real estate should be adapted to the location of a particular land. Not all land is suitable for all construction standards and often you need to make compromises. For example, if you already own land that is suitable for building a house of 120 m2 and not for the construction of several apartments in a row then you will definitely not insist on building a small apartment complex.
Furthermore, the investment and return period indicates how much time you will be able to return your investment for a certain period of time. This information can help you to further plan your finances. Many investors do not make an investment venture using their own funds but with taking loans. Any investment of borrowed funds carries with itself the risk that the investment will not enable their timely return. It is important to be careful that you will not be in a situation of insolvency when investing because of the bad allocation of financial resources (your own and foreign).
The amount of funds invested is also related to the degree of completion of the real estate. Building a real estate requires a lot of costs, so you should avoid bad or market inappropriate project (architectural) solutions, include the costs of all necessary construction works and horticulture, promotion costs, and therefore create a competitive selling price.
In addition to the risks that are closely related to your decisions, there are also those that you as an investor cannot influence, related to various administrative and legal obstacles that can cost you money, but most of all the nerves because they can slow down or even delay the process of real estate.
Plan the costs of maintaining a property that is built
In order the property to be usable for the purpose for which it is sold it is essential that the facility itself is functional and technically correct. Therefore, every real estate needs to be maintained regularly, which brings with it certain costs.
Some real estate agencies also have property maintenance services and there are various service packages. In general, real estate maintenance involves a tour and inspection of real estate, control of all current and water installations, venting real estate, keeping the property key, eliminating minor failures, cleaning the property, arranging the surrounding yard, etc.
As long as you as an investor are the owner of the built real estate you need to manage account for the costs of its maintenance. Once you sell a property, that obligation transfers to the buyer.
Plan the costs of promoting and advertising real estate
You can advertise the property after you build it, but also during the construction process. It is also possible to sell real estate that is still under construction. In order to achieve fast sales, it is necessary to promote the real estate, which is also to be included in the financial structure.
Promotion and advertising costs are inevitable in the process of selling real estate. It is difficult to find a buyer and sell a property if few people have information about its existence. Therefore, it is important to present it to the market in the best possible light.
The more information and visuals your ad includes, the more likely you are to attract potential customers. Apart from the general information about the location, surface and characteristics of the property, along with the description it is crucial to visualize the real estate. The visual display on the real estate market is just as important as its description. You can attach a description of the real estate image, create a real estate catalogue, as well as its 3D visual view.
You can advertise it by yourself, or you can engage an advertising agency or a specialized real estate agency. As already described in previous articles, real estate agencies are included on the supply side and on the demand side of the real estate market. Their specialists will post your ad and search for a potential buyer. They have access to a large customer base and are familiarize with their preferences regarding the purchase of real estate.
Contact an expert
The process that is needed before, during and after the construction of a real estate is not easy, requiring full-time engagement and significant financial resources. Usually, investors are not experts in all areas related to real estate construction and it may happen that they do not take into account some factors that should further complicate the process itself.
That is why it is recommended that you contact an expert at every stage of the process you are not familiar enough with. You will certainly need to use the services of the architectural office and the construction engineers, but also the real estate agency is at your disposal.
Investigating market opportunities and potential risks, maintaining property, and advertising them can do the agency instead of you and save you a lot of time. Their large knowledge base and expert experience will be available to you to successfully invest in real estate for sale.