New to Real Estate Development? Here’s How You Can Minimize Risk

Here are seven tips for industry newcomers, such as carefully monitoring market changes and exploring trends in microlending.

Real estate development can be very lucrative to those who are successful, but it can also be very risky if one has not mastered all aspects involved. Below are some ideas for those new to the real estate development landscape on how to minimize risk.

1. Continuously monitor market trends and economic conditions. Knowing current contractor costs and the preferences of buyers and renters is crucial.

2. Spend sufficient time doing your homework and planning out the project. Projects can be derailed by costly mistakes.

3. Set up proper lines of funding, including bank financing, investors and your own personal funds. Look into the new trend of crowdfunding and peer-to-peer lending.

4. Have a good marketing plan in place. Look into crowdsourcing platforms that will allow a large number of small investors to have a look. These are new ways of investing that can help get projects funded and underway quickly. According to Business News Daily, the global crowdfunding market could reach $90 billion by 2025, up from $34 billion in 2016.

5. Don’t underestimate time and expenses when planning. Develop realistic estimates of time and expenses, and then give yourself a little cushion.

6. Regardless of the expertise of the team you have lined up, double-check all figures as you will invariably come across issues that need to be addressed.

7. Develop strong relationships with brokers, appraisers, architects, engineers, general contractors, tenants, attorneys, bankers and any others who will be involved in your project.

Developers are entrepreneurs who push the envelope by taking calculated risks while always looking for ways to mitigate that risk. Sometimes their entire net worth is riding on a single project. If a development project fails due to the inability to sell units or rent space, that loss falls on the developer (and any outside investors).

Successful developers will look for exciting new designs, use innovative building materials and incorporate advanced construction methods. They will look for value-added services that attract buyers and tenants to their buildings.

Real estate development is expected to continue its growth in the coming years. Development of multifamily buildings is projected to rise between 25 and 28 percent in 2017, after completion of 289,000 units in 2016, according to MPF Research. Whether you’re working on residential or commercial development or other projects, knowing how to solve problems and finding ways for your project to come in both on time and under budget will ensure your success.

About the author

Dan Gmelin is senior vice president of underwriting and head of Architects & Engineers and Miscellaneous Professional Liability at Argo Pro. Gmelin previously served as senior vice president and A&E product head at Hiscox Insurance Company. He was one of the first employees at Hiscox and helped build the company from the ground up. Before joining Hiscox, he was a senior underwriter at Professional Indemnity Agency. He also previously served as a financial adviser with CIBC Oppenheimer’s High Net Worth Private Client Group. Gmelin graduated from the University at Albany, SUNY.

About Argo Pro

Argo Pro, a member of Argo Group, is a leading provider of professional lines insurance products and services that can accommodate medium and large organizations on an admitted and non-admitted basis. Through a single operating platform and a robust network of appointed wholesale and retail distribution partners, Argo Pro offers a broad, customizable portfolio of errors and omissions and management liability insurance solutions. Argo Pro maintains offices in Chicago, New York City, San Francisco, Scottsdale and Hamilton Township (New Jersey).

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