Investing in a construction development means you are basically paying people to construct something for you. Commonly, this will look something like this:
- You have land that you’ve either bought or inherited
- You want to build houses on this land
- You allow construction companies to bid on this project
- You pay the winning company to complete the build
- You get money from selling or renting the houses that are built
When you look at it like that, it’s pretty straightforward. Nevertheless, there are some golden rules to follow with an investment like this…
Get All the Legal Stuff Dealt With
Firstly, ensure all the legal stuff is taken care of. This starts with seeing if you are legally allowed to develop on the land. Despite owning the land, there could be rules based on what can go there. So, find out from your local government before proceeding with anything.
Secondly, get the legal documents in order when creating the construction contract. This will include full details of the work you want to be carried out, along with a timeline of when you expect things to be completed. It’s super important you work with a lawyer here to ensure that the contract is correctly written and there are no loopholes that could damage your investment.
As the investor, you do have opportunities to protect your investment. For example, what would happen if you invest in this development idea, only to see the construction fall way behind what you expected? The craftsmanship is shoddy, there are mistakes everywhere, and it’s damaging your investment. It would be impossible to sell or rent these homes, so you make a significant loss. With something like a maintenance bond, you can stop this from happening. This bond basically ensures that the contractors will maintain the project for a period of time after completion, and also that they will correct any errors.
You can request this bond – along with many others – as part of the selection process when looking for contractors. As such, you’re basically protecting yourself from big problems, ensuring that you minimize your losses.
Think Long and Hard About the Development
Make sure you actually invest in something that you believe will generate money. Is it worth building a few houses on your land if there are already loads of houses in your area? There’s a new housing development with over a hundred houses close by, and they still haven’t sold them all! This shows there’s a lack of demand for homes in your area, so it’s not a wise investment to make right now.
Perhaps you’re better off constructing something different? Perhaps you can install a wind farm there, or a solar one? There are many opportunities, so don’t always assume that the classic construction development of homes is the best option.
Generally, investing in a construction development can be one of the best ways to make money from real estate. But, make sure you remember these golden rules before you commit to anything!