How To Develop Residential Real Estate

How To Develop Residential Real Estate
by Tamara Rein - September 2, 2021

What is residential real estate? Residential real estate island that has been built for the purpose of allowing people to live there. Residential real estate cannot be used for commercial or industrial uses, according to municipal zoning rules. The process of development involves analysis, various studies, ideas, cost estimates, marketing, etc. Learn the process of how to develop residential real estate with Prudential Cal.

Steps To Follow For Residential Real Estate Development

  1. Development Idea

The developer's intuition is the key to success in this market. A successful real estate project starts with a great idea and plenty of confidence. To have an idea for a real estate development, you need to look at the market demand and the developer's commitment.

  1. Purchase An Option On The Site

The next step is to look up sites in the market area. Places like neighborhoods, city or any country can be a marketplace. Whatever location is selected, it should have high demand. Once potential sites have been identified, the developer should choose the best one based on location, accessibility, topography, and other factors. When the best location has been found, the developer should purchase a land option.

  1. Market Feasibility Study

After signing an option agreement or a contract to purchase the property, the developer must conduct a preliminary market feasibility assessment. The study includes demand research and analysis based on population demographics, as well as supply research and analysis based on a review of competing for single-family residential developments in the market. 

  1. Plans and Specifications

Based on the analysis of the study, the developer should get a preliminary plan ready and should also prepare instructions for the subdivision development. Once done with the planning the developer should contact the appropriate planning authority to check if any zone changes are required.

  1. Financing Commitment

In the next step, a development mortgage loan could be applied for by the developer. Because such loans are risky, the typical loan-to-value ratio is in the region of 60-66% of the total retail price.

  1. Final Market Feasibility Study Anf Final Specification

The final market feasibility study is a document that provides information on how many houses can be built and sold in the defined area, as well as estimated lot absorption rates. It also includes an informed estimate for prices or other factors like demand analysis with supply and that fits into it. Once done, the developer should then finish the drawing proposed for subdivisions and contact the construction contractor and the appropriate utility companies

  1. Cost Estimates

It's important to estimate the development costs of a project accurately and include a contingency fund for unforeseeable additional expenses.

  1. Discounted Cash Flow Analysis

For financial purposes, a Discounted Cash Flow analysis should be done to compute the present values of the cash outputs and cash inflows.

  1. Risk Analysis

Perform risk analysis. The marketing risk or the danger of selling six lots per quarter at the average price per lot is the most significant risk in creating a residential subdivision.

  1. Construction

Next up is the construction. The developer should collaborate with a construction contractor for the construction of roads and the deployment of utilities throughout the development's early stages.

Are you wondering to become a residential real estate agent? The guide by Prudential Cal provides all information you need to become a real estate agent.

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