Multifamily construction projects are complex and involve careful planning, attention to detail, and precise execution. Unfortunately, developers often make mistakes when starting multifamily building projects that can lead to missed deadlines, budget overruns, and significant losses. The good news is that knowing these common pitfalls and how to avoid them will help to keep your project on track. Keep reading as we review the common mistakes often made by developers so you can avoid them when beginning your next project.
Insufficient Planning
Perhaps the biggest (and most costly) mistake many first-time developers make is jumping into the process of constructing their first multifamily housing project without a well-defined plan. Before breaking ground, it is important that you take steps to plan your build. You can do this by researching the community’s needs, assessing market demand, creating a project scope, setting goals for your project, and creating a detailed project plan and timeline. The fact is that without a proper plan in place, you are more likely to encounter problems and roadblocks that could cause costs to spiral out of control, or you may find out upon completion of your project that there is little demand for the type of community you’ve built.
Choosing The Wrong Site
During the planning phase, make sure that you’ve chosen the right site for your development. If you rush in and start construction without researching the ideal location for your project, this increases the risk that you will face logistical and financial challenges along the way.
When assessing sites for your development, perform a location analysis. Take the time to research what the rental market is like in the area and what type of housing is in demand to see if your project would be a good fit. You should also research local zoning, permitting, and compliance requirements to see if any regulations could cause problems for your project.
You may find it beneficial to consult a local construction consultant at this phase who can help you perform site analysis and feasibility studies for your project. They can help you determine which site will work best given your budget, local zoning and building codes, and other constraints you may not have considered.
Failing to Set a Realistic Budget
One of the costliest mistakes any developer can make is failing to set a realistic budget. If you do not take the time to set a thorough, realistic budget, and you don’t manage your budget properly at every phase of construction, this could cause significant financial strain and even project delays.
To prevent this from happening, you should create a detailed cost estimation before construction begins. Break down the project into phases and estimate direct and indirect costs for each segment.
Of course, projects rarely stay perfectly on budget, as it is common to encounter problems along the way. This is why it is important that you allocate a percentage of your budget as a reserve to handle unforeseen expenses so that you have room in your budget to handle any surprises that may come up.
Minimizing Due Diligence in Permits and Approvals
Failing to obtain necessary permits or abide by local building codes is a costly mistake first-time developers often make that can lead to delays and even expensive rework. Be sure to research local building codes and regulations as well as permit requirements as early in your project as possible, as this will confirm that your plans comply with local regulations.
You may find it helpful to partner with professionals who have expertise in local zoning laws and building codes. They will help to ensure compliance throughout the construction process, which can prevent costly delays.
Underestimating The Importance of a Strong Team
A significant mistake first-time developers/real-estate investors make when building multifamily residences is underestimating the importance of hiring the right team. Having the right team of professionals by your side will make you receive quality work that is on time and within your budget. Don’t make the mistake of simply choosing business partners who provided the lowest bid or who you found first. Take time to research your options so that you hire only experienced and reputable architects, engineers, contractors, and consultants who have the right skills and knowledge to handle a project of this size and complexity.
Overlooking Energy Efficiency
Finally, a critical mistake many developers make is overlooking energy efficiency. While skipping energy-efficient upgrades may seem like a smart way to save money, it can have significant financial ramifications in the long run by leading to higher vacancy and turnover rates and even decreased property values. When planning your development, consider investing in energy-efficient building materials, light fixtures, and appliances, as this can reduce costs for your tenants and boost occupancy rates.
Investing in a multifamily real-estate development can be an exciting prospect, but it is important that you make smart decisions to ensure your project’s success. This includes knowing the common pitfalls multifamily developers often encounter and making plans to ensure you avoid these mistakes.
Feel free to contact us to find out how Ted Trout Architects can support you as you start this journey and help you avoid common problems developers encounter when starting a multifamily building project.
