For those of us that are Developers and Builders of “spec” new construction, or those of you that buy houses to fix and flip, I would venture that all of us have a few things in common.
• Thrill Seeking
Of course, for lenders, those terms are not what make them feel comfortable. Therefore; in order to keep our financial partners happy, it’s necessary to find a balance that allows us to feed our obsessions, while mitigating as much risk as possible, and end up with a financially successful project.
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Obviously all of us, no matter what niche we are in, are in this business to make money for ourselves and for our financial backers.
At the same time, many of us like this business because it is fun! Part of that is due to “the thrill of the hunt”, scouring the MLS, ads, streets, anything to find that perfect parcel, or property that we can add value to, and sell for a healthy profit.
Every time I drive past a vacant parcel of land, I imagine what could go on it, if it’s a dilapidated house, I wonder if it’s in foreclosure or probate. If there’s an old building, I ask myself if it can be re-purposed to another use. I’m sure all of you are the same, it runs through our veins.
Once we’ve located a property, the next step is digging into the details. Figuring out exactly what the highest and best use for it will be, and what it will cost to get it there.
When building “spec” new construction or buying that home to flip, every project is a gamble, because there are no buyers lined up and waiting upfront.
In fact, it may be months down the road before the project is ready to go to market. Therefore, the more answers and homework you’ve done upfront, the less of a gamble it becomes.
Whatever project we do, we are always very mindful that others are trusting us with their money. Sometimes its employee retirement funds, a college fund, savings, etc. and the futures of others are riding on our deals, and we take that very seriously.
Thankfully we have a few lenders that have worked with us for years, and are comfortable enough with our judgment that they don’t even require appraisals, etc., which helps cut down on the time frames.
Watching a new project come up out of the ground is exciting.
Taking what your team has imagined and designed, and building it into reality is always a thrill. That empty lot suddenly starts morphing into what will be a family’s home, an old neighborhood suddenly gets an infusion of new life, a new doctor’s office gives off a more professional vibe, etc.
Whatever we build will be there for many years to come, and can positively change an area, if done right.There’s so many unknowns when you build spec.
Thankfully we’ve been doing this enough years that we have a good feel for what will work and what won’t. We know what buyers like and what they will pay for, which is a distinction you have to be able to make. It’s all a balancing act.
Oftentimes on BP I read posts from new investors wanting to get into development deals. I ask:
• What is the demand for the property you want to develop?
• What is your experience?
• What skills do you have?
• What is your local market and economy like?
• How much money do you have to work with?
One of the greatest lessons I’ve learned over the years is this “Just because you can do something, doesn’t mean you should”.
We need to do our homework. It has to make sense.
Just because you can imagine it, doesn’t mean it will be marketable! There are far, far more great projects in our minds than are ever built.
In development and building, there’s potential for high returns, but there’s also the potential to lose big, so mitigate as much risk as you possibly can before you start any project . If you want to gamble, go to Vegas!
What are some of your stories hunting, gambling and thrill-seeking in real estate investing?
Be sure to leave your insights and comments below!