Property development and real estate are fickle businesses. One minute, you can be on the top of the world and feel like nothing will ever bother you. Your business is booming, your portfolio looks fantastic, and you couldn’t be happier. Then the next day, everything is crashing around you.
There is an element of property developing that is always going to be dependent on a factor you can’t control: the economy. House prices are one of the biggest indicators of whether or not an economy is doing well. If they begin to sink, it suggests a lack of consumer confidence, meaning that storm clouds are gathering on the horizon.
So when you are a property developer, there is an element of your business that is totally outside of your control. You are subject to the changing winds of a major economy, and there’s not much that you – personally – can do about it.
If you’re already trying your hand at property developing or are still at the point where you’re searching for new condos to pique your interest, then it’s worth having a plan in case the economy begins to show signs of strain. What do you do when prices are crashing but your entire business is built around making a profit off the sale of real estate?
Option One: You Wait It Out
The best property businesses have a contingency for this kind of scenario, in case of a delayed sale for any reason. It’s always a sensible way to structure your finances; if you plan for an immediate sale, then you are immediately vulnerable. It’s always wise to factor at least three months of extra expenses for running the house (such as the mortgage / taxation you may be liable for).
In the worst case scenario with the national economy however, you might find yourself waiting for a lot more than three months. Waiting this out is probably the wisest move, but that depends on you having the funds to do that. If you don’t, then it’s time to move on to…
Option Two: Sell and Run
Prices might be bad right now, but what if this is just the beginning of a downward slope? If the signs are bad, then it might be best to break your investment early and get out before things get even worse.
This might mean losing money, but what you need to figure is whether this move will stop you losing even more money in the future. If you suspect the blip is just a temporary problem, then this is an extreme course of action – but if the signs are that the economic problems are global, then it might be time to cash out.
Option Three: Proceed As Normal
Even when prices are down, people do still buy and sell houses. Any good property investments business will have a margin; obviously you want to make the most money as possible, but reducing your sale price (while still keeping a healthy profit margin) is something a well-structured business can survive.