Last year we prepared our project for the construction of a multi-apartment building called Rezidence u Dubu, which will be located 2 kilometers away from the western part of Prague in the Horoměřice settlement. In our portfolio, we already have similar structured projects where we have implemented real estate construction and following sales od the apartments with impressive results, but we have not yet delved into the details of why our company has been choosing this strategy for more than a year.
Today, we will focus on investment projects related to the purchase of land and next real estate construction. We will take a look into detailes, what are the components of this mechanism, what aspects are crucial forchoosing a developer, delve into the main benefits, and explore why projects with a development structure have become so popular among investors in recent decades.
When we talk about an investment strategy that involves building real estate for future sale, it is most often either a developer’s project or an investment-construction project. Both options imply the opportunity to invest in real estate, but the differences between them are in the level of investor involvement in construction development processes, risks, expected profits, and the stage at which the project is currently.
A developer’s project may require more active involvement from the investor. This is the early stage where investment is essentially made in the idea, the plan proposed by the developer, and where can be madechanges, for example, to the layout of the future building. Here, there remains a risk of potential difficulties in obtaining of building permits or unfavorable market conditions that may affect the project’s viability. Hence, it’s crucial to choose a developer with experience in real estate projects, whose expertise and knowledge you trust. The advantage for an investor entering at this stage is access to more favorable conditions or discounts from the developer (compared to those investing in later stages) and a higher profit potential.
In investment-construction projects, the investor only plays the role of a financial participant who invests with the aim of gaining profits from selling the real estate after construction completion, without actively participating in the process – all matters are handled by the developer. Typically, at this stage, everything is nearly ready for construction: there’s a finalized plan, building permits, land plots selected or even purchased, and thus, the investor puts money into an already prepared project.Risks, as well as profits, are generally lower at this stage and may be connected, for example, with potential construction delays or market conditions in the real estate market. On the other hand, investors can expect faster profits compared to the initial stage, as the project is either under construction or nearing completion.
At what stage to engage in a real estate construction-related project is a personal choice for each investor, depending on your preferences, risk tolerance, expected profits, and investment strategy. However, in both ways, it is important that you have confidence in the developer who will ultimately execute the project. What steps should you take for this?
- Firstly, get sure in that the company has all the necessary permissions for its activities, how long does it exist, what services it offers, and whether it can carry out construction – in other words, ensure its has legality, stability, and reliability.
- The next parameter for selecting a developer is their expertise in land selection, project development, construction management, experience, and professionalism. Ideally, the project you are considering for investment will not be a “trial” for this company, and it can provide you with a portfolio of completed projects with a development structure, for instance, similar types (residential or commercial real estate) and the scale of construction.
- Furthermore, by examining the company’s completed projects, you can also assess the developer’s financial stability, review the project completion timelines, evaluate the results, and understand their level of transparency. Choosing a developer means choosing who you will invest in a partnership with, so it’s crucial to take the time to learn about their past projects and working style, which will be beneficial in case the deal happens.
Talking about development projects in general, they are of interest to both – investors and developers for several reasons, not just for their potentially high profitability. In the world of investments, real estate has always been one of the most reliable and promising forms of investment – it’s a long-term investment with relatively minimal risks compared to other assets, an asset that will always maintain its value. Real estate is an integral part of modern urban planning culture, playing a vital role in regional economic development. Increasingly, new technologies are being introduced during construction, more efficient and environmentally friendly materials are being used. Such projects enable cities to grow, create new jobs, stimulate the development of infrastructure and local businesses, ultimately positively impacting the quality of life. In many ways, it’s an opportunity to invest in the future.Moreover, development projects often offer investors the flexibility to use their investment variably. A project initially considered as a means to increase capital through the sale of a finished apartment can also become a source of passive income from long-term rentals or transform into a cozy and comfortable living space for the investor.