Being a successful property developer might not be as easy as it sound. You need to be careful in every step you take. Often it happens that a property developer may make a mistake and lose money even in a rising market.
There are some mistakes that property developers should avoid, here is a list made by Angus Reed – property developer:
- Thinking location is everything: A good location doesn’t guarantee you profit. If you select an area that is in the center of the city, you will have to pay the highest price for the land and thus, your room for profit will be decreased. Instead, you should buy land in an area that is anticipated to grow in future and will give you high returns.
Location of the land has a direct impact on its price and consequently your margin. Optimize the location so that you get the land at the right price and in a location that will make your building a hot property.
- Getting carried away while buying land: Being a property developer means being a good negotiator as well. You should understand that you make money when you buy, not when you sell. You can’t be sure how soon all the units might get sold. So no matter how good profit you can make in future, you must negotiate while buying.
When you buy a land from an auction, you should not get carried away with the emotion. Always set a limit on how much you can spend and stick to it. In any auction, if the bidding doesn’t reach the predetermined value called the reserve price, you can try to reach the seller afterward.
- Compromising on quality: You should keep in mind that the quality of materials used in the building should never be compromised. Cheaper material might look tempting but it certainly won’t get you buyers for your units.
Of course, the quality depends upon the location as well. You cannot use the most expensive materials available in the market in the locality where prices have hit stagnation and people cannot buy expensive units.
- Thinking more bedrooms means better: Some developers think more number of bedrooms make the unit more valuable and hence their profit will increase. This is not a golden rule. In residential units where people live with their families, this could be true but not for other places.
If you are developing a property in the middle of the city, chances are that buyers are looking for single or double bedroom apartments. If you increase the number of bedrooms there, you are decreasing the number of potential buyers.
- Over-expectations from returns: Just because you have put a lot of efforts does not mean you will be able to set the price you want. Also, just because some other property developer made huge profits does not guarantee you will get the same. You should be a little flexible with the price of your property.
If you have been keeping the price high for a long period of time, your money is stuck. It is important for you to realize that you need to set a time frame under which 80 to 90 percent of your units must be sold. Use your money efficiently, you can make profits by investing in other projects too.
The above-mentioned mistakes are some of the common miscalculation that property developers may experience. It is important that you realize that your motive is to maximize profit at every step. Don’t get too much emotionally attached to the units you have made. Keep these oversights in your mind since they can turn out to be really costly for you.