Profiting from Buying and Selling Real Estate Renewal Projects Part 1
"It is worth the benefits and fun you can make out of it."
We all use and occupy real estate, so redevelopers earn much wealth renewing it. Others exchange their hard work for a fully customized house to use and occupy. However, it rarely is as glamorous as seen on HGTV. If you have already attended live seminars or bought books and videos you probably have realized that it is not as easy as the hype made it out to be. The number of triumphant stories pales when compared to the number of distraught reports. Just ask someone who has done the feat – they are either bragging that they are enjoying their fully customized home or crying that they got stuck with a poorly planned and executed project.
As a lifelong construction manager and inherent builder, I have evaluated many distressed real estate improvement projects. I have been doing it for quite a while before I began helping the public profit from buying and selling their real estate renewal projects. Most if not all have followed me throughout my tenure. Many of my experiences were setting up the funding for redevelopment projects, but I am no stranger to delayed and overrun schemes. When the money gets funny the plan must be refunded nearly every time.
How to complete a real estate renewal is not as simple as it may seem. I hear a lot of prospects say their relatives are in home improvements and I see them coming to look at dilapidated properties with flip-flops and tennis shoes. Beside the laborious construction work, profiting will require preparation and hard work in financing, figuring feasibility, plotting the timing and the sequencing for progressing the project from the inception to rolling over the income into another project to offset your tax liability until your goal is fruitful.
Just about any agent or home improvement contractor will level the following steps off with you. They will count these seven admonitions as the key to successfully complete your restoration endeavor.
- Walk through the property to get a better idea of the work that will need to be done.
- Create a scope of work outlining the specifics of the project.
- Find the right constructor for the job.
- Organize your critical documents and prepare to get started.
- Manage all aspects of the project.
- Complete another walk through and make the final payments for the job.
- Stage the property and host an open house.
My issue with that spiel is that when you get to numbers 4 and 5 and have not realized that you have already started and managing the project; you are seriously in trouble. Moreover, did you notice that I referred to it as a “restoration” project? That is because what they are telling you about is a totally different animal from profiting with a real estate renewal project. To restore is one thing and to renew is another.
Financing construction is having funds available so line up your resources sooner than possible. Hey, why do Hard-Money Lenders are most expedient? You will have your plan clear before you approach them, and they charge interest from the moment they decide to fund your project.
Although most developers are some wealthy individuals, there are 20 times more fakers that will try to belittle the maneuvers and simplify the process. Redevelopment is more work for a group or a development company to spread the responsibilities, the costs, and the risks of doing it successfully. But any real estate redeveloper can be as small as 1 individual or 1 organization interested in the acquisition of real property and subsequently procuring the improvements upon that property for benefits to both property and developer.
The most important development of any business (short and long term) is the feasibility of the project. Feasibility studies look at all aspects of the construct, the viability of the construction including the site acquisition, planning consents, financing, and undertaking the design, construction, marketing, and exit. Bottom line: can you take all that on and come out with your shirt still on your back. A long time ago, the envisioning principal would take a managerial role and apportion work to other professionals who can undertake and complete their own expertise to team the project. It still is, but many triers of real estate development go bankrupt because they tend to rely on the first individual who promises some affinity to the vision regardless of whether they have the technology or not. I can go into examples and experiences that you may find familiar and recite stories you can relate to, but this is a blog post.
Financing and Project Timing
You are the main financiers of the construction projects when you are a developer. It does not matter if you borrow the funds from yourself, your family, your friend, or your local banker; you are the main financier. Enough said?
You or your partner may have experience in the myriad of construction trades and will have clear understandings of building designs and construction sequences that you may aspire to become a real estate developer. Nevertheless, a developer is not a title because until you have a vision of something better than your present product or position and methodically step out of your comfort zone to improve upon your present position – you are just another should have, would have, could have. Its work: so, do not try to pawn it off on anyone else and hope to blame someone else if it fails and enjoy the highs if it wins. The odds are not as stacked as a roulette table or a slot machine. Actually, you are in total control. If you are not in it all the way, the wins will never be your case.
Assembling a Team
You do not have to know construction! The logistics of running construction projects are complex and often mythically associated with the physical remnants of a failed development project. But many successful real estate developments are the ones we hardly recognize. Can you imagine the lone homemaker who is directing the movers on where to put the large furniture so that homemaker can position the other finishes to make the home? How about the left-handed brain surgeon who has her surgery laid out totally opposite to the other right-handed brain surgeons of the world.
All those constructs and directions were developing procedures by construction professionals in their own manner. So, what makes real estate development makes everyone squirm.
Your objectives as a developer is the appointment of a team to help you propose the financing, project the accounting, communicate the design, and coordinate the construction. “Move it to the left a little bit!” I hope you understand what I am writing – I do not mean you run out and start running behind tradesmen just to prove you know more than they do.
Do not be an absurd micromanagement idiot. It is not that complicated so let us back up. I eluded to the key person several points earlier on in the game. That key person is going to get the vision of yours on a medium so everyone else can see it and provide specific experience to the nature of the project so you and them can build it.
Please forgive me! That is my cue to start this series. I wanted to see how far we could blab without using our operative word, “BUILD”. Anyway, come back to read the next parts of this series soon. We can go into, Creating Your Plan, Stepping Up To YourLenders, Engaging Your Constructors, and Staging Your Exit -- with more money than you laid out all total.