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Risks and Rewards of Property Development

Property development is a savvy

investment and a wonderful way to earn

a steady source of monthly income—in

fact, experts say that real estate

investments are often a good idea, no

matter what the state the economy is in.

There are still risks involved, of course,

but with those risks come rewards. Keep

reading to learn about the benefits and

potential drawbacks of property

development.

The term “property development” may be vague to some, so consider this:

virtually all property owners take part in development of some sort, from

simple renovation to complete redevelopment. Making a profit from renting

or selling that property once it has been redeveloped is the central aim in

most property development endeavors.

As does any investment, property development carries its own set of risks

and potential rewards. Among the risks, or concerns, of a property developer

are the management of costs, the liability of suppliers, the issue of raising

capital and handling the ongoing cash flow that keeps the project going, and

above all, the risk of ensuring there is suitable demand for the property once

it is ready to be sold or rented. Traditionally, property developers invest

funds, sometimes quite significant amounts, during the process of the

development. This process can take up to several years.

As for the rewards, property developers only see dividends at the end of the

project, when the property is sold or rented out. For many developers, the

overall degree of risk in property development is substantial, but the high

revenues from a sale or long-term leasing make the risk a manageable one.

One particularly high risk involves developing the property without pre-

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renting or pre-selling it—unless the developer can time the project’s

completion appropriately within the property market cycle.

Other risks and rewards depend on whether a property is sold or leased. If

the property is sold, the developer will receive the total financial gain at one

time, whereas if the developer decides to rent out the property, the

dividends will be split into monthly payments for as long as the property has

tenants. In addition, with a direct sale of the property, the developer has no

more responsibilities in regards to the property, whereas leasing it to

tenants means handling a wide array of duties such as advertising and

screening tenants, collecting rent and other fees, taking care of upkeep and

repairs, and many other tasks. Fortunately for those investors who want to

receive a steady monthly income from renting out their property but do not

want to control the everyday tasks of being a landlord, there are property

management businesses that take care of just about every landlord duty,

from start to finish.