Everyone wants to make money, but relatively few choose real estate development as their tool. Why? It could be the level of risk.
“Like most businesses, the successful development of real estate must result in a financial return acceptable to the developer,” says Perry Staniscia of Southfork Developments and In the Black Advisors Group. “Although conducting business in all sectors has risk, the development of real estate poses higher risk relative to some other businesses due to the length of time associated with bringing projects to market along with many variables beyond the control of the developer.”
With this kind of risk involved, what measures can developers take to see a return on their investments? Staniscia notes that although higher returns are possible and are “usually expected to compensate for this higher risk,” such returns are not guaranteed, and it is the marketplace that holds the power. “Successful developers should have a good read of the marketplace and must be able to mitigate risk. A sound financial feasibility assessment, development plan, and insurance strategy are essential in determining whether the development of a project should proceed.”
Ultimately, experience wins the round. “Although no one has a crystal ball,” says Staniscia, “experienced developers are able to make money in both strong and weak markets due to their ability to adapt quickly to factors beyond their control.”
Read more in Staniscia’s “Financial Feasibility Assessment, Insurance, and Development Plan” in the Fall 2018 edition of Input. Download Fall 2018
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