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Think You’ve Got What it Takes to Be an Investor and Land Developer?

By: Tony Seruga, Yolanda Seruga and Yolanda Bishop

It takes a certain type of person who is not afraid of risk to become an investor and land developer. In fact, the more risk there is in a project, the more profit can be made. Not everyone is cut out for this type of business, but those who are, are extremely powerful and profitable in our world.

Developing raw land is an extremely profitable business because it has to do with commercial real estate which is very valuable in and of itself, but also because there is a certain amount of risk that comes along with land development. Not everyone is capable of looking at the facts, conjecturing about the future, and able to make a move to capitalize on a specific piece of property. There are simply too many variables that could go wrong- and will go wrong, if you do not know exactly what to look for. Experience is truly the only way to feel confident in such a huge investment. Even the best of land developers make mistakes and can lose out on a lot of money.

Risk is what makes land development so profitable. There are simply not a lot of people who would be able to handle that type of risk easily. So what type of risk would you be looking at as a land developer?

The first and probably most obvious risk is your skill level. Are you capable and have the necessary skills to develop and entire piece of property without much error? It takes a great amount of knowledge in math, science, finance, architecture and building to successfully develop a piece of property. The larger the property, the more difficult this can be. A land developer would not want to attempt something that they did not have the necessary skill set for.

Coinciding with this risk is the risk of finishing a project on time. If a project takes longer than it is originally proposed, you can believe that you will be faced with extra expenditures that will eat away from your profit. There might be rules, ordinances and deadlines that will cause further political and financial problems if a project is not finished on time. It takes excellent planning to see a project through completion on time. This is a huge risk that a land developer does everything in his or her power to make sure that the project is done well, and on time.

There is risk before the project even begins. This risk is finding a property that one could actually create profit from. Many times finding a property where there is guaranteed property is difficult to find. You never know, no matter how hard you try to look at surrounding land values and comparable sales, exactly the money you stand to make from any one project. There might be additional building costs or expensive problems that you may run into. To avoid this, purchase a property that is already below market value. Let’s say an owner is extremely eager to sell and he knows that the property, as-is is valued at about $5,000,000. However, the owner really needs the cash and decides to sell the property at $4,000,000. That is an instant $1,000,000 in equity. The land developer knows that no matter what, he or she will have $1,000,000 in equity that will turn to profit if the property is sold. This strategy provides cushion for the unexpected happenings that are related to land development.

The next, and usually most intimidating risk for some, is finding the funding to actually develop a project. Land development is not cheap and the amount of money that goes into it is not for the faint at heart. Finding someone who will loan that amount of money and being able to prove to that person that you can pay it back through the project, plus some can be very difficult. Whether it is an investor or a lender, finding this large amount of funding and actually using the money is a giant risk every developer must face.

There is also risk for all those involved during the project. Because the project is not making any money while in development, are you able to maintain a steady cash flow to survive while all of this is taking place? It is one thing to get the money upfront; however, it is another to maintain some sort of healthy cash flow for your team so that everyone can eat. This cash flow must be factored into the project before hand because many times the amount of time to profit can be one year, two years, or more, depending on the size of the project. Can your project sustain until the profit can be made and distributed?

If you are new to the commercial real estate industry or are a seasoned developer or investor, it is important to acknowledge the risk that goes into the development of land. It is neither easy or simple and requires much risk and planning. Not everyone has these capabilities but those who do are extremely important to our society. Without them, we would not be where we are today or have such a bright future ahead of us.

Article Source: http://free-article-depot.com

$600 million worth of property is being managed by Tony Seruga, Yolanda Seruga, Yolanda Bishop and their partners as of May 2006. They specialize in commercial real estate, and are always looking for new projects across the U.S. www.maverickrei.com.

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