7 Most Common Challenges In Real Estate Development

Apr 30

Real estate development is about building new structures and modifying existing ones to increase their worth. Developers might focus on making new places for people to live or work, like offices or stores.

Developers usually take care of everything from the start of the idea to finishing the project. They plan it, design it, find money for it, put together a team, and make sure everything gets done.

Once it's finished, they usually sell it to a real estate investor (like you).

Even though real estate development can make a lot of money, it's not always easy. There are lots of things that can go wrong and make it hard to finish the project or make money from it.

Let's take a look at some of the big challenges.

1. Studying the Market

In real estate development, it's a big risk to assume, "If I build it, people will come." It's better to focus on projects that match what people “actually” need, instead of hoping they'll want what you build.

To understand what the community needs, you should look at the economic, educational, employment, and environmental data. This helps you figure out what kind of buildings will be useful and wanted.

2. Choosing the Right Location

You've probably heard it many times: location is key. For any real estate project, a place that matches the people is important. That's why finding the perfect spot is crucial.

You need to look for places that fit your target customers and the main group of people you want to attract. To figure out if a site is right for their project, you can consider factors including:

- Accessibility

- Competition

- Environmental risks

- Applicable fees

- Design requirements

- Planned improvements

3. Opposition

It's important not to overlook the possibility of opposition from the neighborhood. Sometimes, projects can get stopped if neighbors convince local leaders to cancel them, even if the law says the developer can go ahead.

Neighbors might have lots of reasons to oppose a project, like worrying about more traffic, more noise, or changes that might spoil the feel of the area. They might also have concerns about conflicts of interest or different values, like wanting to protect nature versus wanting more money from new buildings.

To avoid problems, you should figure out why neighbors might not like the project and come up with a plan to talk to them and address their worries.

4. Getting Permits and Approvals

Before starting any development project, one of the first things to do is get approval for the plans from the local government office. Then, there are permits needed for different things like building new structures, fixing old ones, or even tearing things down.

For each part of the building, like electrical systems or plumbing, there are separate permits needed. While getting these approvals and permits might seem easy, sometimes it takes longer than expected or they might not be given at all.

To avoid problems, you should begin the process early and talk well with the local government office handling permits. This can help prevent delays and make sure everything goes smoothly.

You can also seek help from a professional real estate development consultant like Terra Alma in Atlanta.

5. Job Site Risks

Construction sites are full of risks, so it's important to find them and figure out how to deal with them. That means making strategic plans and rules to keep everyone safe.

According to the Occupational Safety and Health Administration (OSHA), the chances of deadly accidents at construction sites are higher than in other industries. The most common injuries include:

- Falling

- Slipping and tripping

- Airborne and material exposure

- "Struck-by" accidents (when a worker is hit by a vehicle, falling object, or flying object)

- Excessive noise

- Vibration-related injuries

- Scaffold-related injuries

- Electrical incidents

- Burns

- Material handling injuries

6. Minimizing Defect Losses

Architects usually have insurance to cover potential mistakes like using the wrong materials or calculations. But sometimes, the losses from these mistakes can be way more than what the insurance covers, especially in big projects.

That means you as a developer could end up losing a lot of money.

To lower the risk of losing money from design mistakes, you can get more insurance coverage, both from the architect and the project policy.

But the best way to avoid losing money is to pick experienced architects with a proven track record with few mistakes.

7. Managing Cost Overruns

Real estate development can be profitable, but sometimes the costs can exceed the planned budget. Higher prices for materials and workers or unexpected problems can make budgets go off track.

Developers are the ones who have to deal with these extra costs. The best way to avoid them is to plan an extra 10% to 20% in the budget to cover any surprises.

It's also smart to add an extra 10% or 15% of time for each stage of the project to make room for any delays that might pop up.

About Us

Terra Alma is a boutique real estate firm in Atlanta. Our team of locals is well-versed in the real estate market and has a big network to provide you with everything you want without any hurdles.

Chelsea Brown