To stay in the real estate development game today is a challenge that few would have imagined 5 years ago. Demand for new commercial and residential construction was high, financing was readily available, and small and large businesses alike were making deals and making money. What a difference a few years can make. With a worldwide economic downturn and fury aimed at the real estate market, the likelihood of success today is a substantial challenge. Impossible? No, but without a clear vision and focus, success is hard to come by. A possible secret to finding this success? Agility. Real estate developers of any size and shape must be able to quickly adapt to any change: market demands, financing availability, other economic impacts. Change is inevitable, and the changes we see today may be totally different tomorrow.
So, how can change of this magnitude be a positive for residential real estate developers? The need for greater agility has culled out much of the competition. Many smaller, part time real estate investors and builders have fled to other, safer harbors. Fewer small builders are competing for the demand that does exist. New construction starts are improving, but pale in comparison to where they were before. But there are niches where opportunity awaits. Many options exist for remodeling older homes in established neighborhoods. The market for good neighborhoods remains strong, and the lower priced homes, or those in need of upgrade, can be purchased. Also, new home construction is a viable option in established neighborhoods where vacant lots remain. Rather than trying to make a new market in a large undeveloped tract, purchasing a lot in a desirable neighborhood is a much better bet. Simple upgrades to homes can be an option if you want to rent smaller, more affordable homes. Are there benefits to the homebuyers? You bet. With the more limited new construction, the best sub-contractors are getting the bulk of the work, so the quality of the new homes may be better than ever. Combining this with the new information we have regarding the use of sustainable building practices and materials and you get an even better home than you would have 5 years ago. Also, if your appetite is for rental income, the demand for rental properties is growing daily. So many homes can be remodeled and rented. Better construction contractors, better materials, better locations, better choices. All wins for the homebuyer or renter.
Residential real estate developers still need to manage expenses and financing well. The risk of speculating is too great in many areas. Staying away from too good to be true prices for land (unless you intend to land bank for several years) is another agile strategy. Stay nimble, think smaller and be reactive to changes as they appear. Focusing on maximizing quality locations, utilizing quality labor and building quality homes for purchase or rent is a best bet for staying in the residential real estate game.
About the Author: Attorney Tom Godfrey’s primary practice focus is on real estate and land development matters, environmental law and compliance, sustainable, green and organic business initiatives and advising, labor and employment law, the forming of corporate entities, commercial and industrial real estate investments and transactions, non-profit entity creation and administration, technology businesses, landlord-tenant, publishing, golf course club management, municipal law and general business management consulting.