Everyone is chasing the “big win” in property development. Over the last 25 years, I have been fortunate to achieve some great success, but I have also learned that you can’t control everything. I have come to accept that in real estate, there are four risks which if not managed correctly, could destroy your investment dreams.
Most newbie property investors see it as a way to get rich quickly. That may be true, but there are also lots of risks you should be aware of and elimination strategies for them. Here are the four big risks that almost every property owner faces and how to eliminate them.
Inexperience
Property development is an exciting and potentially lucrative business. But without the right knowledge, experience and advice, you could find you have undertaken a completely unachievable venture. This is by no means meant to scare you away from a property development; rather, it should be a warning call to ensure you understand the pitfalls before diving in head-first. Look for an experienced property development company in Melbourne. Property development is one of the riskiest types of business ventures that a person can engage in. The reason for this is it requires you to put down capital, hire companies and individuals to do work on your project, and then wait for someone to buy it. This all happens before you can see a return on your initial investment.
Pre-plan
A lump sum fixed price and time contract is commonly used for construction services, which is why it’s still common practice today. Should you be using a lump sum fixed price and time contract So, you are thinking about engaging a local builder or tradesman to build your house? It’s always a good idea to pre-plan such a major project. One way is to draw up a draft budget for the job with an estimate of the total cost as well as the time frame. Then decide who you would like to get the work done.
Due diligence
Purchasing a property, whether it is your primary residence or not, has many implications in your life. If you are not carrying out the correct due diligence when you are buying the house then, there will be serious consequences. Due diligence is a process that requires property investors to check whether certain things are true about the property that they want. The property being purchased, or the investment, maybe under appraised. Due due diligence is also needed to ensure that you are not buying into something with unknown risks or pitfalls. There may be claims in regards to the property or the purchase agreement that can affect your decision.
Borrowing limit
The easiest to overlook but probably the most important factor in project cost is the building life of your new home. Borrowing for longer can increase the project cost because for a given loan term, the more you borrow, the higher your monthly repayments will be, and hence, LMI or any other finance costs will also increase.
