Property development can be a rewarding avenue to bring more housing options to your community or region. Whether you have years of experience under your belt or you're just beginning, there are many common mistakes that can transpire when embarking on a project.
Here are eight such pitfalls that property developers may encounter.
DISOBEYING THE ORDER OF OPERATIONS
One of the fastest ways to spur costly delays in your development project is hastily jumping in head-first without clearly outlining the order of elements. Establishing a phased approach to your project can prevent expensive mistakes. Development of housing has a lot of moving parts. Communication of said plan is key.
MISCALCULATING THE DEMOGRAPHIC
One of the key elements of the planning process when it comes to property development is knowing the audience. At your planned location, how do the demographics line up, and what do they value in a living space? This is where neighborhood research can work wonders for your project—see what others are doing well and where they're lacking, and get to know the values, familial makeups and deal-breakers of the likely renters or buyers.
OVERESTIMATING THE VALUE
Property developers sometime operate on dream prices versus actual real-time sales data. If you overestimate the gross value of your development, you can run into some tough bottom lines come sales or rental time. Do your own homework on sales data for the region to get an actual estimate versus a gut feeling. Limit it to the most recent and most comparable in the most exact location you can.
OVERDOING IT ON PROJECT #1
If you're cutting your teeth on the property-development world and are embarking on your first project, one potential pitfall can be going beyond the scope of what's realistic. Bells and whistles can be nice in neighborhoods that cater to higher-budget renters and buyers, but don't set yourself up for failure by adding unnecessary aesthetic and "bonus" enhancements that won't be affordable enough for the end user. Consider a modest or straightforward project your first go-around until you've become more comfortable with the process.
MAKING IT PERSONAL
When developing a property, you probably have a clear vision of what you want it to look and feel like. Just make sure your own personal aesthetic doesn't blind you to the possibility that your potential renter or buyer might desire something different. Painting yourself into a corner on design can limit the number of consumers who would find your property interesting or attractive. Getting real feedback from other area developers or households can be the best way to take your own personal-aesthetic blinders off.
MISSING APPLICATION DETAILS
Complete and concise applications are a critical part of the property-development process. One step that can get overlooked, however, is the application approval process. The truth is, many councils and commissions that review these apps will be more likely to approve and fast-track your development project if you account for any potential flaws, likely questions or common concerns in the first draft, versus speeding through it with fingers crossed for the sake of time. Be thorough!
NOT DIVERSIFYING YOUR INVESTORS
In sourcing your project budget and potential investors, one way to limit yourself unnecessarily is by not giving yourself diverse sources of funding. A varied set of financial sources can be a benefit on a property-development project, whether it includes borrowed funds from a bank or credit union, community nonprofits or organizations such as South Dakota Housing, individual private investors, etc. Don't limit yourself to just one particular avenue—some of the most effective affordable-housing projects are sourced from several supporting bodies.
IGNORING THE LONG-TERM
Whether you plan to manage the property you're developing long-term or intend on selling it to a third-party, set your project up for long-lasting life. It can be easy to opt for cheaper materials to cut some corners, but if the property begins to dilapidate more quickly than it should, it can cost you money or, if you're selling the property outright to a third party, it can hurt your reputation in the region.