Posted by Robert M. Campbell on August 30, 2003 at 20:53:31:
MJK,
A syndicator is the party that raises the money that funds the investment.
The fee is usually a percentage of the amount raised.
Robert Campbell
What about Real Estate Development? - Posted by Brandon
Posted by Brandon on August 30, 2003 at 13:46:34:
I have in my recent studies been reading books about buying land and building houses, apartments, etc. I have noticed that this is not a subject talked about often on this site. Do any of you use development as part of your investing strategy? If yes, what lead you to development, and if no, why did you decide against it? In my studies around my area, I have found that a person can build a home for less than a full price home on the market costs. The only difference is the horrible maze of regulations and permits you have to negotiate to get a home built. If a person studies out the process and then begins by building one home, and then selling for a profit, or holding as a rental, couldn’t this be a good long term investment strategy if repeated and expanded over the years? I’m not looking for anything quick. I have a great job, enough money, and time with my family, and honestly a lot of the techniques that so many seem to use ie…flipping, L/O, foreclosure or in otherwords looking for distressed owners and properties really don’t appeal to me. The big time developers in my area can’t keep up with demand, and most of the local planning boards, etc say that our county is behind apprx 25,000 units of inventory (houses). Ive been reading the municiple code of my city, familiarizing myself with the zoning requirements, reading the minutes of the planning commision meetings (to get a feel for what there tendencies are in regards to new developments, etc.) What other things should I be investigating?
I would really appreciate anyones thoughts on this subject. Advice on where to continue studying, or thoughts on what strategies are best employed by someone interested in beggining devlopment, and how to use that for an overall investment plan. Really I am open to any thoughts, and your help would be appreciated. Thanks to all!
Thanks for your thoughts!!! - Posted by Brandon
Posted by Brandon on August 31, 2003 at 18:26:57:
I appreciated your thoughts. Jason, to awnser your question I am in north San Diego county. Thanks again!
Re: What about Real Estate Development? - Posted by Robert Campbell
Posted by Robert Campbell on August 30, 2003 at 17:41:53:
Hi Brandon,
I’m a 2nd generation builder/developer, even though I’m not active right now.
It’s a profitable business, but risky. You need more than just ambition. You also need capital, intelligence, and specialized skills.
If I build/develop again, here’s my plan.
Buy the dirt when the real estate market is depressed, the more severely the better.
If home prices fall 20 percent, let’s say, during real estate downturns, you can expect prices for vacant land to fall by twice that amount.
Pay cash for the land when you buy it. Get a construction loan and build it out.
Rent it out.
Hold until the market is bubbling and real estate prices are at five to seven year highs.
Sell it.
If you do this with a 100 to 200 unit apartment project (even with investment partners), you can move to Maui and retire with your profits.
As the builder/developer (and maybe syndicator) you will be well-paid well for the many skilled services that you are able successful perform.
Remember: it’s the land that is appreaciating most quickly during a market upturn, not the improvements on top of the land.
The contrete, lumber, nails, bricks, and labor are rising at more or less the same rate as inflation.
The most profitable speculation play is in the land. If housing prices go up by 50 percent, land will go up by 100%.
By the way, if you are a creative type, there is nothing more satisfying that putting a building on a piece of vacant land and seeing your vision come true.
It’s also very profitable, but’s that secondary … right? (grin)
Robert Campbell
Re: What about Real Estate Development? - Posted by jasonrei
Posted by jasonrei on August 30, 2003 at 17:40:40:
Brandon, I’m a full-time rehabber and am going to start building a couple of houses later this year. I don’t have any visions of building for a living. I will keep on rehabbing, but like you said, it seems like a good long-term investment strategy.
I’ve done enough major rehabs that I can pretty accurately gauge what a new construction will cost. Only thing I’ve never done is grade a site, and prep it (with plumbing, etc.) for the pour. Everything else is old hat. If I can do my first two and make an actual profit I’m sure I can do 5-10 next year with $10-25k net profit each.
What city are you located in?
Re: What about Real Estate Development? - Posted by JT-IN
Posted by JT-IN on August 30, 2003 at 15:30:09:
Brandon:
Having developed several small subdivisions, and built 7 or 8 homes, I can only say that there is far more involved in doing so… on the inside, as opposed to what you see as an outsider observing the frey. Developing is a high risk venture, and should be left to those with deep pockets, lots of vision and lots of patience… as it involves all three, and then some.
If you are smitten with the bug to build a house, go ahead. You will surely see that there is much to it. By all means, avoid jumping into subdividing a development as a part timer. I recommend that if you disregard this advice that you have twice or three times the capital on hand, as to what you estimate needing; it is an easy business to overlook hidden costs.
I have made money developing, but hour for hour, elelment of risk against element of risk, there is no comparison to what can be made by an investor in the areas that do not appeal to you, as opposed to developing raw ground.
Just the way that I view things…
JT-IN
Re: What about Real Estate Development? - Posted by MJK
Posted by MJK on August 30, 2003 at 20:17:48:
Robert,
What do you mean by syndicator? I’ve heard this term before and was just wondering what it meant.
-MJK