How many of you have wanted to get into bigger projects, or new development, but are not sure how to go about doing it? Are you in an area where the housing market is tightening, and opportunities to invest are disappearing?
We live in Orange County, CA, where unemployment is some of the lowest in the nation, there’s a broad based economy, high income wage earners, and the area boasts some of the safest cities in America. The quality of life check list can all be met here. All the components that draw people (investors) to an area, are the same things that push up real estate demand and pricing. O.C. is not alone in this dilemma, many other regions are similar.
Though the bargain “deals” are gone, there’s still opportunity. Prices may be rising but, in all probability they will never again be lower than they are right now, therefore, looking at new niches may help.
Once the market for distressed properties has evaporated, and demand is rising, that’s the time we as developers begin starting new construction. When looking for new development opportunities, we look for land in areas of strong demand, well established values, and opportunities for future growth and appreciation.
Though not everyone has the money, or the experience to develop their own projects, there are ways for investors to get a piece of the new construction and development pie.
Many investors have more money than opportunities to invest and; developers often have more deals than money. Connecting the two can be a huge benefit to all. Money is one of the most talked about subjects on the forums on BiggerPockets. How to find it, and for those that have it, how to invest it to create more wealth. If you’re considering new construction and/or development, here’s a little information to get you started.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Pathways to Getting in on New Construction & Development
- Become a lender – If you have the financial resources to fund a project, you can loan your money to a developer, or builder, and earn a high return on your money. If you’ve never made such a loan, I would strongly suggest you use a licensed mortgage broker. There are some very respectable ones here on BP.
- Joint Venture Partners – You can act as a joint venture partner, providing the funding for the project, in return for a split of the equity. The amount of the split varies, based on participation and risk. If you provide all the money, and the other party does all the project management, and development/construction, it is usually split evenly. If you decide to do this, be sure that everything on the project is spelled out in detail, and have an attorney review it. Be sure you check licenses, bonds, insurance, and get references.
- Buyer. Purchase all or part of a new development – Many developers (such as our company) build “spec” projects, with the specific intention of marketing to investors. Projects are designed to have architectural appeal, yet be designed for maximum cost efficiency, enabling investors to get the highest return possible when leasing out their new property. Finding the right balance between design, return, and meeting the end user’s needs are key to a successful project.
There are a variety of projects, below are just a few
- Live work units – These are popular in areas with bustling commercial areas that are also popular for residential. Sometimes called mixed use projects, live/work units are just that. Commercial use on the lower level, and upper level residential lofts, or condos. As an investor you can get involved on the development side, or purchase a completed unit that you would then buy/lease/hold.
- Commercial, office, or retail condominiums – A commercial condominium, used for a commercial use (commercial, office, retail, or mixed use) Once again, you can participate on the funding of the development portion, or purchase a completed unit for a buy/lease/hold
- Office or Medical Office Building or condominiums – General office space, or specialty office space.
- Residential– Development of a small subdivision, pocket subdivision, multi-family units, or a single home. You can participate by funding the development (all or part), or as an investor purchasing the completed subdivision, pocket neighborhood, multi-family units, or single family home.
Though new construction and development is priced on the high end of markets due to the fixed costs, it attracts higher quality tenants willing to pay higher rents. In addition, the maintenance costs associated with new construction are lower than that of older properties, and will typically appreciate for a longer period of time and at a higher rate.
There are also more unique properties, which I will cover in another blog.
If you are a lender, investor, or buyer, looking for a new niche to invest your money in, you may want to consider new construction and development. It’s always exciting being in on the beginning of a project, from locating the land, designing the overall project, then watching it come up, knowing that it will forever change the neighborhood, and leave its mark on the community.
Photo Credit: PetitPlat – Stephanie Kilgast