Are you new to the real estate development game? If so, we wish you all the best – it’s a great industry to be in, and one that could provide you with a vast amount of wealth in a relatively short period of time.
However, it’s also vital to understand that there are many challenges in the way of your success, and failing to deal with them could lead to complete and utter failure. Let’s take a look at the major issues that might stand in your way – and how to deal with them.
As an real estate investor, it’s likely that you rely a lot on the numbers. But the simple fact is that the numbers don’t paint the whole story – and there are many other factors to consider when doing the math.
For example, let’s say you snap up a buy to let and get a mortgage of $2,000 a month. The going rental rate in the area is $2,500, so you think you can pay off your mortgage no problem and have $500 to burn elsewhere.
But what happens if you can’t fill the property for a month? And what will you do when your tenant’s boiler or heating system breaks down, and you have to pay for an entirely new install? And finally, what happens when the terms of your mortgage change from a fixed interest to a tracker, and your monthly payments rise to $3,000 a month?
Make sure you are allowing for all these potentially damaging incidents – they all happen a lot more often than you might think.
As with any other business, success in real estate is all about great planning and organization. Let’s assume you plan to build a commercial development, arrive at a completion date, and start marketing to local businesses to entice them to move in.
But, as http://www.hsecontractors.com/ points out, there is a lot that can go wrong and knock you off schedule in the construction game. So, things go wrong, there are massive delays, and you are nowhere near finished when your original completion date arrives.
Not only will this mean you start losing money because you aren’t earning rental income, but your reputation will take a huge hit. And let’s not forget, there is every chance the businesses you have tempted may be left without a home based on your promises.
Bad exit strategy
Many new real estate developers start out with the idea that they want to make money from property. But they don’t have an idea of where they will be in five or ten years time – and they won’t have any kind of exit strategy.
According to http://www.fortunebuilders.com/, it can prove catastrophic, because, ultimately, you may have to get out of the game quick. If the markets turn for the worst, or property value and rental prices in your area crash, you could be left high and dry with no way of getting out.
Designing a clear exit strategy will give you a chance of keeping ahead of the game and making decisions that could be the difference between keeping your wealth and losing it.