A typical real estate project development process

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Once the land development process has been completed successfully, a developer will focus his/her energies on the project development process. Developing and delivering a real estate project successfully is challenging and it lasts for several years passing through various phases. Primarily any real estate project can be divided into 5 phases:


Phase I – Land acquisition
The details about land acquisition process can be found in our earlier post of land development process.


Phase II – Construction
Construction phase requires applying for license (permitting), and project development.

• Permitting/Licensing:

The permitting process usually begins with an application which identifies the site, its location, and a preliminary design of the improvements to be constructed. This application is then used by public officials to verify compliance with its current zoning classification. If it complies, the permit is granted and the construction of the project may commence subject to building codes and inspections. If the permit is denied, the applicant will usually clarify or amend the application and will ask the city planning staff/director to review it again.

• Preliminary checklist – Project development:

This checklist is usually the first step that a developer reviews when evaluating a site for possible development.

1. Allowable uses per zoning classification.
2. Minimum lot size per zoning classification.
3. Maximum floor to area ratio (FAR).
4. Building bulk/density limits.
5. Setback/building line.
6. Building height limits.
7. Building footprint/envelope.
8. Parking ratios.

• Important terms/project development:

1. Setback/building line – requirement to construct building a specified number of feet (setback) from the right-of-way line or other landmark.
2. Right-of-way line – area designated for a public street or alley that is dedicated for traffic, public use, utilities, etc.
3. Building related terms:
• Footprint – it is the shape or outline of the primary building slab or foundation as it will be constructed on the site.
• Envelope – the total outside perimeter of a structure, including footprints and any exterior patios, mall ways, landscaping, etc.
• Facade – the exterior, usually the main entrance of a structure
• Bulk – a three dimensional space within which height, width, footprint, and number of structures/elevations/shapes are viewed in total relative to the land area upon which it will sit to determine land use intensity.
• Building codes – refer to required materials and methods used to construct improvements within a jurisdiction.
• Permit- document executed by the director of planning authorizing the construction, restoration, alteration, repair, etc., of a structure and acknowledging that it conforms to requirements under the applicable zoning ordinance.
4. Floor to area ratio (FAR) – it is usually calculated as gross building area divided by square footage of land area.
5. Height restrictions – used to limit the vertical height of a structure to be constructed.
6. Allowable use – user activities permitted in a zoning classification
7. Impact fees – charged by public entities to cover added public sector expenses expected to be caused by the development such as traffic control, drainage, etc.
8. Incentive zoning – used by city planners to accomplish community goals simultaneously with private sector development.
9. Inclusion zoning – part of a zoning ordinance that requires that a specified type of development be included in order to obtain permit for that site.
10. Minimum lot size – per zoning classification
11. Parking ratio – required number of parking spaces per sq. ft of gross building space or per number of apartment units.
12. Site plans – drawing done to scale depicting the placement relative to other requirements
13. Traffic counts – number of vehicle trips per hour past a specific site.
14. Encroachment – occurs when the construction of improvements extends over a property line on to an adjacent property.
15. Property tax abatement – forgiveness of taxes for a specified number of years.
16. Land to value ratio – calculated as rupee value of land to total project value (including land) anticipated upon completion of project.

Phase III – Completion and occupancy

There are certain risks in any real estate project development. Once the construction has been completed, there is an additional risk of selling and handing over the project to clients or bringing in tenants in case of rental property. Risk begins with land acquisition and increase steadily as construction commences until cash flows from the leasing phase materialize. It should be noted that factors determining the demand for type of space (such as office, retail, warehouse) being developed are critical to project risk. These factors may manifest themselves in current market indicators, such as vacancy rate levels, rent levels, or the extent of leasing commitments from the tenants.

A very good understanding of the underlying economic base of an urban area or region is critical when assessing the viability of real estate development.  The point is that investors must examine the demand for space in terms of the characteristics of the demand by end users (tenants) in a given market. This demand in turn depends on the type of employment in the local market and the nature of the functions tenants will perform. Only by understanding the local economy and the nature of employment can developer anticipate demand accurately and produce and supply the quantity and quality of space in the proper combination to satisfy market demand.

Phase IV – Management

Once the property is occupied by clients/tenants, there is need for professionally managed facility management team. This team can look into the property management tasks such as maintenance, HVAC, parking management, security, civil works, housekeeping, landscaping, etc. These tasks are equally important and ascertain the long life of property and thus ensure positive rental income as well as capital appreciation. 

Phase V – Sale

The developer may choose to sell the property from construction phase onward as happens in residential development in India. Or he/she may choose to hold the property in case of commercial developments provided rental income from the commercial properties is significant enough to justify retention.

Follow @sach_gupta

Have any Questions? Tweet to @sach_gupta

The two options for the soon-to-be landlord

Around the globe, there are just two options for everyone looking for the ideal tenant match for their house: One is easy but expensive and another is comparatively difficult but cost-effective and fully autonomous. The easy but expensive one is where you appoint a property management service to find and then manage the tenant and rent respectively in return of which they charge an amount. The second and only one left now is where you do all the hard work in finding a tenant and manage them in your space. While the level of guarantee as to the right tenant is less in either case but the moment you take things in your control, things become a hell lot easier both for your pocket and also provide peace of mind.

The takers for both these options are many but let us look at both the options for the first clueless timers’ sake.

For those comfortable with property management service

The choice to go for property management services is not bad, it not only saves time and effort in finding the ideal tenant but also do a clear background check to ensure that the tenants are genuine. If you are planning to opt for this model, there are just two things for you to consider: where to find the right service provider and being comfortable with the expenses that you will have to incur.

• Where to find the right property management service provider?

Depending on where your property is, you can either go for the traditional word of mouth medium or use reliable real estate portals available on the internet. The latter is much easier for all you have to do is put in your location and search, for example, if your property is in Bangalore, just put in ‘property dealers in Bangalore’ and you will get a number of results on time.

• Be comfortable with the expenses

In order to be comfortable with the expense, you will first need to get an idea of the exact amount. Confirm and research the going service rate in the market and also ask your provider if the cost of managing the property is recurring or one time. Doing this will prepare you for the coming expenses.

 

For the 'do it yourself' counterparts

Doing all the tasks on your own definitely makes you a Brave-heart. Although it may look impossible, it takes less time to get it

• Advertise your house

Begin online. For nominal fees and sometimes even free, you can now advertise your property on renowned websites. Like the last Bangalore example, what you can do is post a ‘Flat for rent in Bangalore’ ad that will eventually take the prospects to the hyperlinked image. For those who want a more advanced result for less money, they should try YouTube or Vine. Upload a simulated tour of the property, then share the links on different classified websites such as Craigslist, also add them in your various social media platforms. After listing your property, do not forget to put in the necessary "For Rent" signage in the front yard.

• Tidy it up

Strangely, some landlords do not even bother to tidy up their houses and apartments before putting it up for rent. Normally, the nicer and cleaner your house is at times when the prospect comes, the nicer it looks when they both stay and leave.

• Repair structural shortcomings

Replacing the busted appliances, chucking out left-behind scrap, pests and termites spray, getting rid of flies and mosquitoes by using the latest mosquito killer devices, and by simply adding new paint coat will take you far in attracting the ideal renter. Also the probability of getting a higher charge increases, big time.

• A ready rental policy

Have a document that clearly specifies the various lease’s TnCs, such as if pets are allowed, if you need a security deposit, and/or expect the tenants to bear their renters insurance. Make sure you have it ready even before you start shortlisting tenants.


We all know how difficult it can be to find the right tenant for your property. There is no right or wrong option here, everything depends on the efforts you can take and the money you have. Now that you know what it takes to go in either of them, make a sound decision.



This is a guest post by Tripti Rai. She writes about the real estate sector, she keeps her readers informed about the latest developments in real-time through her writing.

Is Investing in Real Estate a Good Investment Option?

Real estate is among the few investment options where the asset value is almost always on the rise. Unlike shares and stocks, the risk element in real estate is much lower. Also, the additional income that one can earn by letting out a property can give a major boost to one’s livelihood and lifestyle. Investing in real estate is definitely a wise way of using one’s money and multiplying it.

While putting money in shares and bonds are popular methods of investment, the returns on investment cannot be guaranteed always. Changing market and political scenarios can have a major impact on the value of these assets. The economic scenario at present is replete with uncertainties like fluctuating inflation and job-market instability. In times like this, it is important to find alternative means of taking care of your financial security. Real estate, unlike equity and debt markets, is far less affected by external factors like politics, and is, therefore, a much safer investment option.

However, investing in real estate implies a huge monetary commitment. Therefore, a lot of advance planning is necessary to zero in on any property. Moreover, your job doesn’t end at just buying a property. For example, if you’ve purchased a house for renting out, you need to first take adequate care to maintain it well and beautify it so that it finds takers. Thereafter, you need to keep checking on how the tenant is maintaining the house. After the tenant has moved out, you would need to hunt for another, and before that, renovate or repair the house as may be needed. And, the bigger the property, bigger is the responsibility and higher the maintenance expenses. These days one can also hire a Property Management Company in India. These companies take care of tenant management, maintenance issues, and timely payments of bills. Be it a budget villa in Bangalore or a duplex flat, the commitment to investing, earning, and maintaining is the same.

If you’re looking to rent out a new house property for some additional income, it would make sense to go for low-cost properties in areas that are fairly well developed. The idea is to offer attractive properties at decent localities that will generate interest in prospective tenants. This way, you don’t have to invest a very huge sum of money, and you can get a fixed income once all the relevant repair work and paperwork for renting out are done.

Before setting out on deciding on a property to invest in, it is important to check on certain basic criteria. Analyze options as you would if you were looking for a place to stay. Which aspects would you consider before deciding on a place for yourself? Proximity to basic facilities and amenities is a primary concern for those looking to buy a house. The same goes for those looking to take a place on rent. Similarly, locations where major infrastructural projects are being executed may not be preferred options during the time of construction. Prospective tenants would not go for places located in noisy and polluted areas. Eventually, however, once the infrastructural works are done, the same property may be in demand and fetch a good rent. So, you would need to think on more than just the price and your budget before deciding on a real-estate property.

This is a guest post by Dinesh Dawde.