When should your first ever deal be a property development deal?
If you’ve had any exposure to one of my Boot Camps or Seminars…
Or just read my blog posts…
Then you know for certain that the answer to that question is…
NEVER! (If you can help it.)
Always start small
I always advise beginners in real estate investment to start small…
This might be something as easy as renting out a room…
Adding a granny flat…
Or picking up a small house for just a little bit of money.
That way, you learn the process of investing without high financial risk to yourself.
Buying a piece of land and getting from A to Z on the deal with all the problems in between…
Are the last things that any new investor ought to be thinking about!
There are just too many variables that can block your path and lead you to failure.
That’s because property development is difficult and full of problems and procedures that the novice property developer just won’t be able to see…
Much less have the knowledge or skill to solve.
There’s no mystery in my answer, is there?
An exception to the rule
But, here’s the exception to my “Never” answer above…
And some of you will recognize the answer from a question or two you might have heard at a recent event…
What happens when all you’ve got is a piece of property?
What then?
Let’s fill in a few more pieces of the puzzle…
Say you’re renting your home or your apartment, so you have no equity in it whatsoever…
And, your job just keeps your head above water…
The bills are a stretch every month so you’re not putting any money in the bank.
But…
You’ve just inherited a piece of property somewhere that is in an improving area.
When it was bought so many years ago, it was cheap and out of town by a fair bit…
But twenty or thirty years later, the economy has changed…
The town or city has grown…
And all of a sudden, you find yourself with a nice chunk of land in or near a desirable suburb…
With the potential to subdivide it, put up a few houses, townhouses or even block of flats…
We’re talking about a real cash cow opportunity…
If you can successfully complete such a deal.
What should you do then?
Sell or build?
Should you sell the property and make a nice chunk of change?
Maybe…
In fact, depending on several factors, that may be your best option.
For instance, you don’t have any or much real estate investing experience, do you?
You certainly don’t have property development nor project management skills or experience, right?
Most likely, you don’t have a team of builders, an architect, plumber and all the rest…
And you have little or no experience dealing with the local council in getting all the right permits in place…
There’s certainly opportunity in the land, yes…
But there’s an even bigger opportunity of getting yourself into a heap of trouble every step of the way!
Then, of course, there’s the question about getting the capital to do the build out.
You may get a bank to say yes…
But that will likely only be after you’ve done the due diligence, gotten building plans approved, water, sewer and electricity sorted out.
Then, of course, do you have the time and energy to project manage everything?
So with all of these obstacles I just mentioned…
How could having a totally inexperienced real estate investor with no real estate development knowledge taking on a real estate development project as his first deal be a good idea?
The JV option
Well, given that the bulk of the profit usually goes to the developer of a property…
It may well make sense to find a knowledgeable real estate developer and create a joint venture out of the project…
This would mean that profits would have to be shared in some ratio…
But it also would likely mean that the project would get done right…
As opposed to not getting done at all.
A JV would also make sense in terms of gaining valuable experience and knowledge…
What I really mean is the opportunity to gain some wisdom, as opposed to just knowledge about property development…
The difference being that wisdom is learning from others’ mistakes, while knowledge is gained by your own.
And believe me, any experienced property developer will have made his share of mistakes and faced more than a few unexpected problems!
Why not benefit from that experience and have your development project be a success at the same time?
Networking works!
That brings me to where you can find all the information about property development you’ll need…
As well as some great connections to very knowledgeable—and wise—real estate developers who would make terrific JV partners…
Or who could at least introduce you to some…
When you attend an ILoveRealEstate.tv event, whether it’s a one-day Boot Camp or weekend Seminar…
You’ll be surrounded by knowledgeable people who have been there and back more than a few times…
And chances are, you’ll find the network of people you’re going to need in your real estate investing career…
And help you turn that chunk of land into a life-changing investment.