When you make your living as a real estate developer, you soon learn to sniff out potential problems. Yet, if you are new to the game, there are plenty of pitfalls that could drain your finances and end your grand designs before you have started.
Every industry has people willing to take advantage of others’ naivety, yet the stakes are much higher in real estate investment because of the considerable money involved. Proceeding with calm is crucial to making your way in the industry.
Thorough research is vital before a real estate investment
Here are a few things that could catch you out:
- Zoning laws: Understanding what you can and cannot do in a particular area is crucial. Remember zoning may change in the near future if other developers have their plans approved. For instance, you want to develop a piece of land for industrial use, yet if a rival developer gets the go-ahead for residential housing in a nearby area, the council may change the zoning laws to stop industrial use for several miles.
- Weather: You need to think far ahead if you want your investment to last. Consider how the area you intend to buy will fare in the increasingly hot and dry climate. Will it have water or be at risk of a forest fire?
- Planned projects that do not go ahead: The local government announces plans for 500 new houses. You see the opportunity for a set of shops to serve them. Yet, if the housing gets canceled, you will have no market for the land you bought.
- Plans you are not aware of: It is impossible to know all the ideas in people’s heads. Yet, the wider you cast your research net, the more likely you are to find out.
It takes time and experience to do the research needed to ensure your first commercial real estate purchase does not become your last. Do not be afraid to ask for help.