Successfully tackling a new ground-up construction project can be a daunting endeavor for even the most experienced of real estate investors. There are a ton of moving parts and plenty of mistakes to be made if you are not adequately prepared. No matter the scale or nature of your planned ground-up construction project, it pays to do your homework beforehand so you can anticipate the major challenges you will face and have a plan to navigate them efficiently. To help you get started off on the right foot, the experts at Express Capital Financing have compiled the five most common missteps investors make when it comes to ground-up construction and how you can easily circumvent them to keep your project on-budget and on-time.
What Is a Ground-Up Construction Project?
As the name implies, ground-up construction entails building an entirely new structure from the scratch on a vacant piece of property. A key benefit of the ground-up process is that you have almost unlimited flexibility when it comes to flexing your creative side—the only limits being your budget and timeline. With buyer demand at an all-time high, ground-up construction projects are a profitable investment endeavor for the future with the potential to yield above-average returns on investment.
Top 5 Mistakes to Avoid for Ground-Up Construction Projects
- Choosing the Wrong Location: The location of your ground-up construction project is arguable the single most influential factor in determining its overall profitability. Building in a location with too little demand could make it challenging to effectively market the finished product. The longer the completed build sits vacant, the more it eats into your profit margin. To avoid any issues, research the surrounding area and the state of the local economy. Look for areas with solid employment prospects and in-demand amenities such as shopping and restaurants.
- Overlooking Administrative Steps: Certain localities impose stringent zoning mandates that dictate what type of buildings can be constructed in certain areas. For instance, there may be limitations on height, number of units, color and more that could throw a wrench in your planned build. Always be sure to be up-to-date on any such requirements and obtain all necessary permits and licenses before breaking ground in order to avoid costly delays and monetary penalties.
- Inaccurately Estimating Expenses: The harsh reality of the construction industry is that almost no project goes exactly according to plan. One of the most common mistakes investors make is failing to build in a contingency budget to take care of any problems that may pop up over the course of the project. Certain costs are variable and thus hard to predict, such as labor costs and materials—especially in an industry that is still working out pandemic-related supply chain issues.
- Setting an Unrealistic Timeline: Investors need to have a solid grasp on all phases of the construction process and the time allotted to each. This is crucial for coordinating contractors and keeping the build on track. Note that delays are likely to happen due to a multitude of factors—whether that be delivery lags, labor shortages, etc. Just like your budget, you need to factor in some wiggle room in your planning to accommodate for these complications.
- Not Maintaining Open Lines of Communication: All stakeholders involved in the ground up construction process need to be on the same page during all stages of the build in order to avoid potentially costly miscommunications. Be sure to conduct regular check-ins with all contractors, lenders and colleagues so there are no gaps in communication that can lead to trouble down the road.
Get Started Today with Express Capital Financing!
Whether you are a solo investor or run a large investment company, Express Capital Financing specializes in getting you the money you need without all of the extra paperwork and lengthy delays associated with obtaining a conventional mortgage. Our team of financial experts takes pride in crafting innovative, flexible and effective funding solutions that are individually tailored to meet all of you needs. The ground-up construction market is definitely trending upwards—contact us today to learn more about how we can help you tap into this profitable investment sector!