Develop Something New Or Buy Something Old?
Saving money is a good thing right? Especially when you’re talking about a lot of it.
It’s a mindset that goes across most walks of life and pretty much every business, including property developing on every level from private homes to international hotel chains.
One thing most developers, big and small, don’t factor in to the equation however, is time.
How valuable is that?
Consider this. It takes somewhere between 18 – 24 months for the whole process, that’s from buying the land, getting the licenses, clearing the land, engaging the architects, sourcing the contractors and hiring/firing/hiring the builders to eventually topping off and cracking the first bottle of champagne, before you can congratulate yourself on finally building your dream home or hotel.
The questions to be asking yourself are:
1. Is that an amount of time you’re prepared to accept as non-revenue generating?
2. Can you really afford it? Both financially and time-wise?
3. Does it really make sense to your head and your wallet?
Buying an existing business or property can be much easier.
It may take just a few weeks to get things how you want them, either operationally or with renovations but at least you’ll have cash flow from the beginning, which in a lot of cases is better for you.
In terms of time, buying something old wins.
Let’s get real about this.
A contractor and development is likely to go through three phases, which you should be prepared for:
1. Soft Cash
A contractor is going to propose an amount to build your home or hotel. This is rarely an accurate amount because prices for materials and labour can, and often do, change over the course of time it takes to build.
Contractors are also looking for your business and they know price is a very important factor in that. They know if their quote is too high it will be ignored, so they keep them low to secure the work.
Be aware, in attempts to stick to budgets it’s not unusual for contractors to cut corners.
2. Realistic Cash
From my experience this is normally around 15-20% above the contractor’s initial quotation and what you’ll actually end up paying.
If you’re prepared for that all well and good.
3. Hard Cash
On rare occasions actual expenses can be as much as 30-40% over budget! That can seriously kick into savings and cash flows and turn dreams into nightmares.
Be aware, when projects hit the 30% over-budget mark, buyers’ remorse often kicks in and the thoughts of buying the existing business or villa next door begin to grow stronger by the day.
Then what do you do? Call it a day? Or bite the bullet and continue, knowing it’s going to take a lot longer to get the returns on your investment.
Maybe you have both the time and money to invest in the land and build options. If you do there are some great opportunities to be had and they’re available now.
Of course, the final decision is yours. But my advice is to make the decision with as much knowledge as you can because information is more valuable than anything.