Land development is one of the smartest investments out there for creating passive income and potential long-term profit, but it’s not without it’s financial risks. Threats to a successful project are varied and present during all phases of development.
In part 2 of this guide, we lay out the most common obstacles and how to overcome them.
Building Costs and Market Research
During the beginning due diligence stages of the process, it’s advisable to research construction costs within the local market. Without a set design, this info is more about getting a general sense of the working budget, and should be updated for accuracy as the design solidifies.
Next, market research should be conducted to help determine profitability. This involves speaking with local brokers and realtors about similar projects within the area to determine how well they’ve performed. The developer uses the research results to try and determine the total project budget and likely ROI.
Things to consider during the design phase
After conducting due diligence early on with market research, zoning, and various other issues, it’s time to verify the findings with design professionals.
Depending on how far along the design is, professionals such as engineers and land planners for example, can offer insights geared towards producing the highest possible value. They can help discover the best location for the project within the parameters of the local laws, and fine-tune details regarding things like construction costs and loan structuring.
Project management
As development moves forward, there are still several different variables which require supervision. These categories are usually overseen by either the developer, the owner, the contractor, or the lead architect.
Consultants and specialists
It’s crucial to be aware of the different consultants involved in the development of the project, as well as having general knowledge of the issues surrounding their tasks. There are many consultants involved: civil engineers, land surveyors, accountants, electricians, etc. There can also be more specialized consultants, depending on the type of project.
It’s the responsibility of whoever is managing these professionals, to make sure they have proper insurance policies, stay on schedule, and fall within the budget.
Consistent updates and clear communication between the various consultants, is necessary for maintaining a smooth operation and falling under the budget.
Another consideration is that the concerns of different professionals don’t always align with each other or the budget. A common example is how an architect’s aesthetics don’t always align with an engineers practicality, or consider the budget. Facilitating early communication catches this sort of issue early and allows them to coordinate an affordable solution.
Design-bid-build VS Design-build
There are two main methods for delivering a project, offering different pros and cons that influence overall project management.
With “Design-Bid-Build” (the traditional method), designers and builders are contracted separately, and bid for the position. They have no contractual obligations to each other and the owner takes on the main task of ensuring all aspects of the project are completed. With “Design-Build”, one entity oversees the project, and the builder and designer work together on all aspects.
Bidding
Using the design-bid-build method, contractors are invited to bid on different parts of development. They’ll often bid low to win the job, but that doesn’t automatically mean they’re the best company for the project. Their reputation and previous projects should be thoroughly investigated to avoid poor quality work and costly scheduling delays.
Navigating bureaucracy
As touched upon in Part 1 of this article, land development entails working with city officials and navigating many local laws. Things such as zoning laws, building codes, and environmental regulations, all have specific requirements.
The process of obtaining these approvals can be tedious, which is why it’s advisable to work with local architects and design professionals. They tend to know the ins and outs of the local laws and have previous relationships with city officials. They can also help facilitate meetings between the owner and the appropriate city official.
APX West is committed to helping our clients maximize their personal investments, by consulting with them and guiding them through the development process. If you’re interested in learning more about land development in Arizona, or can use our support, contact us at 928-412-3570
