By Real estate development involves the development of real estate for sale. The process can be divided into two stages: Pre-development and construction. Pre-development involves identifying the right land, acquiring the right building permits and getting the property approved. Development can be a lucrative business if done correctly.
Pre-development
Real estate development projects can be divided into two phases: the pre-development phase and the construction phase. The construction phase is financed by the sponsor or by outside investors, and is typically funded through a short-term construction loan. The loan is often disbursed in instalments based on certain milestones. Investing during the construction phase yields lower returns than pre-development investments, but higher returns than investments made after the building has been stabilized. Once construction is complete, the project receives a certificate of occupancy, which allows the property to begin operations. The certificate of occupancy process is based on objective criteria and administrative procedures.
Managing pre-development expenses is an essential part of real estate development. If properly managed, it can prevent costly budget overruns that arise before the project even breaks ground. During the pre-development phase, the project lead is bombarded with proposals and invoices, which must be reconciled with the project’s budget. Traditionally, this information is organized into static spreadsheets or file management systems. However, these systems require manual updates and are vulnerable to human error.
Investing in pre-development is a high-risk proposition. Most investors finance this stage with seed equity provided by the project sponsor. Investing during the pre-development stage yields higher returns than in the development stage, as the project has cleared most major hurdles. However, the most significant impediment to capital formation is local jurisdiction permitting.
Pre-construction
Pre-construction for real estate development is the stage before construction begins. This stage is popular among investors and savvy buyers alike. Buying during pre-construction gives buyers the security of knowing what they are getting into. However, Bill Bhangal some buyers choose to wait until construction is complete before purchasing. Fortunately, the pre-construction stage provides options for all types of buyers.
A few benefits of pre-construction real estate development include lower prices. Usually, you can buy a unit for 10% to 30% less than the cost of the completed property. Developers are also more competitive and use the latest technologies and materials. The price of the property is a fraction of the final price, and the buyer gets to live in the property of their dreams.
In addition to these benefits, pre-construction properties often have tax breaks. For example, condos in New York City may qualify for tax abatements, which lower property taxes. Buyers also have more leverage during the pre-construction phase if they have a large down payment or can pay all cash.
If you are thinking of buying a pre-construction property, it’s important to know your options and make sure that your chosen lender can accommodate your needs. You’ll need to work with your realtor to determine the best option for your financial situation. He or she should be able to advise you about the options available today and the impacts of market shifts. Your real estate agent and lender will be your biggest allies throughout the reservation process and up to the closing.
