Is Real Estate Development Risky?



If done right, property development is one of the most effective ways to make money and build wealth. From commercial, industrial, office, and retail; to condos, single-family homes, and apartments, investors can earn a good return on investment from real estate development.


Despite all the benefits of property development, there are also some risks of which you need to be aware.


Here are some of the most common risks:


Permit risk

During the pre-development stage, getting the right permits from the local authorities can be a major challenge. In most cases, developers are required to obtain two sets of permits; one to approve land use and another for the building. For the land use permit, the developer is expected to explain if the property will be used for residential, commercial, or industrial purposes. If the proposed land use infringes the zoning bylaws and official plan, the approval process can be halted, or drag on for months.


The building permit is issued to ensure that your structure satisfies all building codes and safety standards. Failing to meet any of the requirements could slow down your project significantly.


Finance risk

Real estate development can be a costly affair. Besides the cost of land and construction, your budget must include other ‘soft’ costs like engineering fees, legal fees, appraisals, property taxes, permits, soil tests, and rezoning costs. In addition, you will need to account for unexpected increases in the cost of labor or building materials.


Property market downturn risk

The 2008 great recession showed that the housing market is unpredictable. Though property values usually increase over time, your building could also depreciate. The economy, interest rates, supply and demand, government policies, and demographics affect rental rates and home prices. Due diligence and careful research will help you avoid such downturns.


Renting/selling risk

What if the expected tenants do not appear? What if, after constructing a building to sell, no buyer is interested? All these are potential risks you might have to deal with as a property developer.


Conclusion

So, the overall upside of real estate development is simple: there is money to be made! And now is a great time to consider developing, as we laid out in our previous post: Now Is The Time To Be A Cottager.


To mitigate the risks and manage the potential annoyances, the best way to get involved in real estate development, you need knowledgeable partners. Luckily, the Regalway team is experienced and always looking for new investors to partner on new development projects.

For information, reach out today: Book a Consultation

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