Deciding to build, whether a single-family residence or multifamily apartment building, takes a lot of thought and planning. Whether you’re an amateur property developer or a seasoned professional, here are six key fundamental things to remember before you start.
If property development is new for you, you need to familiarize yourself with the process and set yourself up for success. Talk to local or regional peers you admire or knowledgeable figures in your community—for example, real estate agents, city planners, contract attorneys, local public housing authority, property management companies, architects and contractors are good sources of information in getting started. (Plus you’ll make valuable connections you can capitalize on later.) South Dakota Housing can also be a great resource.
This should go without saying, but it’s a good idea to go over (potentially with a financial advisor or lender) the profitability of your property development venture. Are the amount you’re borrowing, the interest you’re accruing and the associated maintenance costs balanced profitably with the amount of money you plan to earn from renters and lessees? An experienced lender can help you determine the costs and fees that will come with a multifamily dwelling or commercial property. Will you be able to collect the monthly rent or sell the house for the amount necessary to have a profitable development? Do you have sufficient financial resources to handle a slower than anticipated lease up or a longer than anticipated home sale?
The Perfect Spot
You’ve got a notion to develop, but where to do it? There are plenty of sizes of communities to choose from here in South Dakota, but neighborhood choice is key. Make sure that you’re not swayed by a rock-bottom price tag in the hopes that the neighborhood will one day be an up-and-comer—find the happy medium between soon-to-be popular and too popular to afford. (And don’t limit your construction budget by picking a site out of your price range.) Will the proposed development fit into the neighborhood and be aesthetically pleasing? Are you located near services that will be beneficial for the renters or homeowners?
Aim for Quality
When developing your housing and finalizing your budget, ask yourself: “Would I live here?” If the answer is “no way” than you might be skimping too much on the quality of the property. Shoot for fixtures, appliances and finishings that are built to last and are worth investing in for the long-term worthiness of your property.
Know Your Buyers
Whether you’re developing property for rent or for purchase, it’s important to know the buyers in the market you’re targeting. For example, do the demographics lean more toward people with children? Are the majority of households in the area low- to mid-income? Are there a lot of young singles? Tailor your amenities and the setup of your property to the likeliest of people to nibble once the “for sale” or “for rent” sign goes up. Is the housing priced accordingly for the “likeliest of people”?
If your primary aim is to develop properties that are safe and affordable for people in your community, you’re in luck. There are opportunities to fund your project with the help of South Dakota Housing Development Authority (SDHDA). SDHDA’s programs can provide funding for developers and owners for rehab, new-construction and acquisition projects for income eligible families. Check out the details here.