Step 5: Set Up a Realistic Capital Structure
Make sure your capital structure is realistic and has contingency and holding costs built into the total funding required. The amount will depend on the project scope (months of construction) and how aggressively you plan to set the asking price (months of marketing).
You can estimate the number of months for construction, but work with your real-estate brokers to estimate the marketing period. Add several months to the total for a cushion. The interest clock ticks all night, so don’t leave out this cost. Don’t underestimate the timeline or you could end up paying costly refinance or extension fees. You may also have to cut the price quickly to sell the property. If the property has no showings or if there are plenty of showings but no offers, you must cut the price.
Step 6: Manage the Construction Process
Although you may trust the subs you have hired for your project, you must be on the jobsite. You have to inspect the work and address unanticipated issues because how you handle them on your project may be different than when you’re hired by someone else.
Make sure you and your contractors are carrying the proper builders risk, liability and workers’ compensation insurance. Often, builders risk is overlooked when renovating an occupied home because the homeowner has insurance on the structure and there is typically minimal risk of stolen materials. However, when working around a vacant property you own, you need builders risk coverage to cover the structure and materials.
Getting into the real-estate market is a learning process, so be ready to research everything. Although you will be more efficient with each project completed, there is no substitute for hard work.
Jim LaVallee is director of marketing and development, and Rick Bennett is director of design and construction for Atlanta-based Epic Development, which focuses on new construction and renovation work primarily on a speculative basis.