Updated: May 7, 2021
In my books, courses, and my mentoring, I will often talk about the need to get in and out of an investment quickly - especially when investing in land development and new construction. By that I don't mean that these strategies are get rich quick schemes. What I mean is that the longer your project lasts, the greater the risk you incur. Risk comes in several forms:
- the risk that the underlying economy will change for the worse,
- the risk that interest rates might rise suddenly,
- the risk that the resale value of the finished project might go down,
- the risk that materials and labor costs might go up,
Every day your project runs over schedule increases your carrying costs. Carrying costs include mortgage payment on the purchase of the land, any utility costs, insurance, property taxes, security / fencing, rent on your office, payroll to any employees you may have and your monthly salary. Carrying costs exist whether you are actively doing on site work on your property or not. Typically, it is these costs that get forgotten, or underestimated, in the original budget. We tend to focus on the actual construction costs - as you can get firm quotes for those. We also tend to be over confident on the amount of time the project will take, that leads to underestimating the carrying costs. Be conservative when calculating these costs add in a large contingency for unforeseen delays.
Many delays will be out of your control, but to speed up the time from project initiation to completion, the best you can, try to do the following:
- try to work in municipalities / jurisdictions that are friendly to developers / builders, with quick permit approval processes,
- try to work in municipalities / jurisdictions that don't have a lot of red tape and regulations,
- if you work in areas that can be weather dependent, try to time your onsite work to coincide with the better parts of the year to work (i.e., avoid hurricane season or the coldest part of winter, if possible),
- work with qualified and experienced professionals, who can get their part of the job done in a timely manner,
- don't try to push the application process through city hall yourself, have your civil engineer or architect, who are known and respected at city hall, do that for you,
Getting in and out of a potentially long project, as quickly as you can, will greatly increase your chance for success. That will make you AND your partners happy.
Learn more about "New Construction as a Profitable Investment" in my newly released book. Available by clicking here
Learn more about one-on-one mentoring with Darcy, and taking advantage of his 20 years of experience by clicking here