The global real estate is worth trillions of dollars. Real estate developers across the globe target investing their capital in real estate developments that are bound to offer quick, reliable, and substantial returns. The industry is, however, shrouded in various critical factors that affect its performance. The process of building a strong real estate investment portfolio, therefore, requires one to be well-equipped with the basics.
Factors that affect real estate developments
Real estate developments are affected by various factors that vary depending on the country or region. Among the various factors that determine the net appreciation of properties include population growth. A high population growth implies that there will be an increased demand for properties, thereby denoting a favorable atmosphere for real estate developments.
Another factor that affects real estate developments is the population’s purchasing power which is in turn determined by factors such as employment rates. A market where a large percentage of the population is employed implies that more people can purchase properties.
Real estate development life cycle
The process of developing real estate properties, main buildings, is defined by a lifecycle which denotes every activity that goes on during the development of properties. The real estate development life cycle begins with the acquisition of land from where the real estate development would be erected. The concept design phase involves making engineering drawings on how the real-estate property would look like.
Additional processes in the property development lifecycle include obtaining of permits and approvals, securing of financing for the construction, the actual construction process, the marketing process, and property maintenance process.
Real estate risks and returns
Real estate developments and the industry, in general, are shrouded in various risks of varying magnitudes. Among the key risks involved include the prospects of having real estate properties suffer credit risks where tenants may go bankrupt as a result of unforeseen economic issues. This may leave a real estate developer at risk of running bankrupt, leading to subsequent risks such as auctioning and liquidation of properties to leverage any financial debt incurred.
To leverage and protect investors from such risk, it is important that real estate developers conduct thorough research before the onset of the real estate development life cycle and before undertaking any developments. Having real estate development without substantial risks is impossible. Foreseeing every risk, however, ensures that proper mitigation is done to minimize the resultant adverse effects.