Whether we realise it or not, managing risk is something we all deal with everyday. For example, the simple process of crossing a avenue entails a certain degree of risk which we manage without even blinking an eyelid. Imagine for a second crossing a busy avenue without trying left and right, without gauging the direction and speed of site visitors, and without gauging the distance of the street we're crossing. Fortunately most of us are excellent at managing these everyday risks effectively.
However what about managing the risks of something as advanced as a property development project? Well, whilst the risks are more numerous and larger in complicatedity there are still certain measures you possibly can take to manage them effectively. Let's take a look at among the more notable risks in performing a property development project and how one can manage them effectively.
Risk 1 - Not Having Enough Information
By far and away the greatest risk in property development is the risk of undertaking a project with inadequate knowledge. I've seen it many times before the place individuals undertake their first project with sugar coated expectations of how straightforward property development is only to search out themselves in strife half way down the track because they were not keen to invest in knowledge. Many individuals will let you know that ignorance is bliss however when it is your cash within the deal and your name as guarantor on the loan ignorance can be a very expensive thing! So, how are you going to handle this risk and turn into more informationable in property development? Well, there are three major options available to you.
Firstly, track down some quality property development books and purchase a complete information of the property development process. Secondly, with this information you need to then attend a quality property development workshop to sharpen up the practical application of your knowledge. Thirdly, having read some books and attended a workshop it is best to then be geared up with the mandatory knowledge to undertake your own property development project. For those that lack the required confidence to undertake their own project it is feasible to team up with an skilled property development manager to manage your first project. This way you'll be able to study 'on the job' under the steerage of an experienced property developer and progressively graduate your self into managing your own projects.
Risk 2 - Paying too A lot for Your Development Site
There are few things worse than paying over the odds for a development site and being left with the prospect of bearing all the risk and performing all of the work obligatory to complete the project only to interrupt even or make a tiny profit.
So how do you manage this risk and make sure that you don't pay too much for your development site? Well, it all comes back to the number crunching prior to purchasing the development site. It is completely critical that a comprehensive monetary feasibility is performed prior to purchasing a development site. Given that a monetary feasibility is only pretty much as good as the assumptions made in it, it is totally critical that you simply do your own homework to ensure the accuracy of your assumptions.
As part of your financial feasibility you can calculate what's called a residual land value. A residual land value is simply determined by estimating the project's gross revenue then subtracting the varied bills (excluding the development site) and an adequate profit margin to depart the residual worth of the development site. A residual land value will provide you with the utmost amount that you would be able to afford to pay for a development site therefore guaranteeing you never pay too much.
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