Due to beneficial returns, certain tax breaks, and the emergence of influential crowdfunding technology, real estate investments remain a fantastic addition to one’s personal portfolio. Developers, a role that traditionally represents an individual or small group of individuals, are known commonly for taking the route that most often leads to financial independence.
In order to achieve consistent success as a developer, you’ll need a comprehensive financial real estate development plan that draws out all business objectives, ways to avoid or correct potential roadblocks, and how to generate mutually beneficial relationships with outside investors. As a CPA and business advisory firm, SD Associates has provided real estate financing advice to countless developers, ranging in investment experience and net worth. Below, we’ve identified four essential things that every developer needs to include in their financial real estate development plan.
Conduct Thorough Research:
As you could probably imagine, developers need to conduct a considerable amount of research on properties they are interested in purchasing. Most notably, the location of the property is incredibly important not only for resale purposes, but also due to charges for land, labor, materials, and more. In addition, another thing you’ll need to research is contractors. As you’re clearly looking to keep all of your project costs low, you might feel inclined to go with cheaper labor forces for construction phases. By looking through reviews, finding references, and comparing prices, you’ll be able to identify an appropriate, professional service for the right price that you can rely on.
Create Realistic Cost Estimates:
Before you pitch any investors or begin your crowdfunding campaign on the internet, you’ll need to prepare realistic expectations of total costs. Estimating a realistic property value can often be achieved through identifying the public sale price of neighboring properties, or from commercial spaces that share a similar size as yours. There are a plethora of transactions and contracts that you’ll need to consider throughout the project, including costs for labor, materials, fees, permits, and more.
Consider Debt, Equity, and Investors:
A common misconception is that developers are majority investors or majority “owners” of properties. Relatively speaking, developers traditionally provide a minuscule amount of capital for the development. The large majority, typically around 90%, of capital is raised from high net worth investors or investment funds. In addition, almost every development project requires some sort of debt financing. With all of these moving parts, debt obligations, and equities, you can begin to see why hiring a professional for real estate finance advice can be so beneficial for choosing the appropriate funding option.
Create a Timeline, Maintain Records:
Inevitably, not everything will go exactly to plan during development. In fact, through every stage, there will more than likely be disruptions or times to shift gears. In any sense, creating a thorough timeline estimation will help you hold yourself accountable for intended deadlines or milestones. It will also help you organize dates on which certain investors or lending institutions should be paid, keep track of when vendors or contractors started and ended, and always be consistent with bank statements or loan applications.
Trust SD Associates for Your Property Developer Finances
The complexities of loans, the jumble of investors with various stakes, and all of the regulatory contracts that go into property developer finances make it difficult to manage for even seasoned investors. If you’re starting a new real estate development project, we provide full-scale advisory services, concise estimates and reports, comprehensive tax services, and more to guide you through the intricate, complicated real estate journey. Connect with us today to partner with specialists that can help you traverse the day-to-day logistics of development investing.