Hi BP community! I'm debating on which path to pursue as my 1st development project, and I'm hoping to hear what y'all think on this topic or what you would do if you're in my position. Any thought or comments are welcomed!
Goal of this project as my 1st development: minimize risk of losing money, make annual $100K profit within 18 months.
Goal for long term: build a system and repeat, become an expert within a specific niche.
A little background: For the past 10 years I've been working W-2 and on the side managing several rental properties, long term and short term, worked with contractors for remodeling, participated in multi-family deals as LP. Last year I left my W-2 job so have a lot more time in real estate and could really use some extra income. After diving in the different "trades" of an RE investor, I chose group up development as the part of the rope I'm going to hang on to. It will be a very steep learning curve, but I know which a right mindset and team, it is doable.
Currently I have cash to kick off only 1 out of 2 types of projects that I've gotten really interested in, and here're my mental models:
1. A. Residential, purchase a lot with cash, that has good walkability preferrably around downtown Dallas, vacant or w/ one SFH to be torn down, then build 2-8 units on it. The lot will be in an area with supporting rent so that at time of completion, plan A is to sell all units at completion, and plan B is to keep as rental, refinance and sell in 2 years.
Pro:
1) I can start building credibility as a developer and get qualified in affordable housing projects in the future.
2) I'm more comfortable at this point with what I know and have access to, including: familiar with this market, know the process on paper, know several lots in my buy box that are ready to build, motivated partner that are also ready to start.
Con:
1) Risk of having a saturated market in Dallas. Please tell me if you think this is a wrong statement, especially for townhomes under 2k sf and selling for 450k. This type of product is flooding realtor.com, the margin rate is easily eaten if market is low at the time of completion. Plus every lawyer or doctor I talked to seem be doing or have done some side projects like this.
2) Risk from having more complexity in residential comparing to commercial.
B. Commercial, purchase a lot with cash in city corridors, under 3 acre, build a small industrial warehouse, prelease and sell. If this is the path to go, I plan to join the FlexSpace Network by Hamza. I'm not affiliated nor connected with them in anyway, only had a 30 min sales call and felt like they could be a good entry point for education and network. Disclosure - I've joined residential development course before and talked to a number of land investment programs of which none I felt like proceeding.
Pro:
1) Access to a potential partner that has extensive experience in industrial warehouse design, permit and construction in his w-2 job, and is looking to partner with someone who has fund and time to drive the project.
2) Higher entry barrier, thus less competition from individuals if I choose to play at the right size (where institutions don't touch), hopefully
3) Better outlook on future demand for warehouses and office-warehouse.
4) Better profitability based on my own draft underwriting
Con:
1) Risk of lacking knowledge in this asset class, leading to unafforadable failures
2) Risk of spending the time learning this asset class only to find out that it won't work for me.
3) Risk of market slowing down or getting saturated in the next couple of years at project completion.
Given the negative outlook on macro economy evironment and builders holding on new projects, which path would you focus on for the next 12 months, if you were me?
Please also comment with clarifying question if I missed anything to make my question clear. Thanks a ton!!
