Real Estate Development Risk – 5 Rookie Mistakes and How to Solve Them
Have you ever wanted to know what kind of real estate development risk you need to be mindful of when starting out as a residential property developer?
If the answer is absolutely. Then keep reading because in this article I’m going to share with you the top 5 mistakes I see beginner developers making all of the time and how you can easily avoid them.
First cab off the rank …
1. Impatience Risk
Impatience is a legitimate real estate development risk when starting out. It can become your number one enemy very quickly if you aren’t careful.
That fear of missing out is the main driver behind most rookie developer’s impatience. Which ultimately leads to bad decisions and of course bad decisions cost you money.
The step by step development process from cradle to grave is a long process. Throughout the process, you’re going to need to exercise patience on countless occasions and in many different ways.
So, don’t get caught in the trap of thinking a site you’re looking at is that awesome you’ll never find another one like it. Be patient, run your full due-diligence process.
Don’t let agents, builders or anyone drive any kind of urgency that will take you off course.
There is always another site. There are always other townhouse builders and things always happen for a reason. So don’t force an outcome through being impatient.
Ask all the right questions and complete all the right checks to make sure it stacks up. Then and only then you can do the deal.
2. Discipline Risk
Patience may be the name of the game when it comes to development risk, but discipline is its best friend, even if you have the patience to wait for the right moment or opportunity to act upon.
You then need the discipline to execute your game plan.
You cannot and should not waiver from your game plan under any circumstances, this alone takes plenty of discipline.
Patience and discipline go hand in hand, you need the patience around timing and discipline around execution, simply by being mindful of both patience and discipline will go a long way to helping you deliver consistent and successful projects.
3. Emotion Risk
Making decisions of any kind where emotion is involved can expose you to all types of real estate development risk.
Allowing emotion to dictate whatever move you are making in any way is something that has the legitimate potential to cost you hundreds of thousands of dollars.
For example; you’re trying to identify your next site to develop. You find one and let’s say it’s near the beach.
The second you start thinking about how awesome it would be to live near the beach and how many potential buyers would love it you are already in trouble.
That’s an emotional mindset which is not the mindset you want.
Don’t get me wrong the beach is great, but you need to trust your numbers. The numbers won’t lie and that’s how you want to be making your decisions not through emotion.
You need to focus on the numbers, they’re the only thing that matters if the plan is to build your wealth through property development.
That awesome beach that you’re excited about will impact the numbers for sure but it’s not the beach that’s important it’s the numbers.
You could have the best beach in the world on your doorstep but if the numbers don’t stack up they don’t stack up. It’s that simple.
This is only one example, there are countless other ways where emotions when developing can cost you a lot of money.
So always take a step back and make sure no decisions are made with any kind of emotion involved.
4. Time Risk
Time is one of the most common factors rookie developers don’t respect enough. Not respecting time or understanding how quickly days turn into weeks, weeks into months and even months into years when developing. This can cost you a lot of money.
It’s no secret that time is money. When developing it can bite you hard before you even realise. So, when you are starting out as a residential property developer make sure you respect time.
Understand that every day has a dollar amount attached to it. Know exactly what you need to be doing and when you need to be doing it.
Set reminders and always follow up, never stop following up – follow up the follow-up. You get the picture!
It’s your job as the developer to keep the big wheels turning, it’s your responsibility to keep the project on track and ensure it’s moving forward systematically and timely.
Always be working several steps ahead and NEVER ASSUME ANYTHING.
5. Thinking Its Easy
If you think that undertaking a real estate development is easy and comes with little risk; let me tell you now, it’s not.
Especially as a property development beginner.
To truly gain the knowledge and experience required to execute successful developments consistently is a long road, there are mistakes you are going to need to make.
“A mistake is only a mistake if you don’t learn from it.
Otherwise, it’s a lesson.”
The key is to minimise the impact of these mistakes so they don’t have a critical impact on where you are headed or what you are trying to achieve.
It’s not uncommon for beginner developers to have stars in their eyes, they can get caught up in the money but I can tell you from experience that if you don’t respect the game you can lose money as quick as you can make it.
You need to keep your wits about you and no matter what financial success you may or may not have enjoyed previously you need to understand and remember that you’re only one bad decision away from your cards falling over.
So, don’t allow yourself to fall into the trap of thinking that developing is easy because it’s not. In fact, it’s incredibly difficult and requires a high level of commitment and focus.
Give it the respect it deserves and continue on your path to learning as much as you can about real estate development risk and you’ll give yourself the best opportunity to make it a success.
If you are lucky enough to make a success of it, make no mistake it can and will change your life.
Now if you have an appetite to develop but you don’t have the time to commit to it or you have concerns around the risk.
If you’re looking for a property development project manager why not reach out to myself and my team here at Little Fish we’d love to have a conversation on how we can help you with your next development project.