So, You Want to Build a Real Estate Empire

Real property can be a great investment. In the complicated world of real estate, the fortune often favors the bold. Investors who can identify creative approaches and strategies will have a leg up on the competition. Like any area of investing, those who are ahead of the curve are most successful – time is of the essence. Whether you’ve already got some investment property or you’re just now getting your feet wet, every empire has to start somewhere. Rome wasn’t built in a day, but they were laying bricks every hour. Here are some useful “bricks” to start building your modern day metropolis.  

1. Development Agreements – A development agreement is a contract between a private developer and a local government. The agreement creates a mutually beneficial relationship between the parties. Under the agreement, the developer will be able to adequately plan and execute a strategy for the life of the project, and ultimately secure necessary funding. This is especially important given the significant investment of time and capital involved in a real estate development project. For the government’s part, the development agreement allows for controlled conditions and regulations that are most beneficial to the public interest. For this reason, development agreements commonly arise in urban renewal projects designed to improve an area of a city, or a plan to generate targeted economic development. Whether it be a town center, a shopping marketplace, or an affordable housing complex, a development agreement can be utilized to grow your empire!

2. Horizontal Property Regimes – Everyone knows that real estate is a limited resource. Unless you’re discovering uncharted islands in the Bermuda Triangle, even as a real estate mogul, there is a finite amount of land out there. A creative approach to make the most out of the real property you own is the use of a horizontal property regime. An HPR allows for multi-unit or multi-owner property on the land – an approach commonly used in a condominium project. To implement a horizontal property regime, a real estate developer must file their plans with the County Recorder. These filings include things like a detailed declaration, floor plans, and interests in the common elements of the properties. An HPR may also create tax incentives for the shared property owners. As a developer, you will also be required to implement bylaws that control the horizontal property regime.

3. Building Your Team – Even the savviest real estate investor cannot succeed without a strong team by their side. As you scale your business, your team will need to grow accordingly. Understanding who to bring in requires you to assess your own strengths and weaknesses – something that is not always easy to do. Hiring an experienced property manager to help control the day-to-day operations is always a strong play that will allow you to focus on the big picture. Having a licensed contractor on hand is also recommended, as your properties will consistently require repair, renovation, and improvement. A true titan of real estate knows when to bring in additional investors to make their newest project a slam dunk, and a strong team of professional collaborators (i.e. accountants, attorneys, etc.) lets you leave the logistics to others while you oversee the entire operation.

4. Diversifying Your Properties – Like any investment portfolio, your real estate holdings should be diversified. This can be done in a number of different ways; whether that be a mixture of commercial and residential property, or a combination of flipped properties and long-term investments. The proper allocation depends largely on your goals as a real estate investor, as well as your comfort level when it comes to risk – and there isn’t one correct answer. Favoring commercial or residential property will vary based on your knowledge of that particular industry. Additionally, your initial capital investment will be determinative of where you are able to spread your money. When it comes to flipping property versus a long-term hold, there are a number of considerations. Flipping property allows you to realize gains faster and makes your investment significantly more liquid. With flipped properties, you will be required to identify new investment targets in a short period of time, which will require consistency to maintain a successful operation. Additionally, transaction costs are higher with flipped properties due to multiple transactions in a small window. Holding the property as a long-term investment is best suited for a patient investor with a good understanding of the relevant market. Holding property requires a good understanding of property management, and the financial stability to allow large sums of capital to be tied up for an extended period of time. However, a long-term investor should realize significant gains over time, particularly in the value of the land itself. Ultimately, your strategy as an investor will depend on your preference for capital allocation and risk-return ratio.

It’s important to remember that real estate investment is not “one size fits all.” There are several effective investment strategies, and two highly successful real estate moguls may have two entirely different stories. With that in mind, the common denominator is always hard work, diligence, and determination. To find out more about development agreements, horizontal property regimes, and other effective tools to grow your real estate practice, contact the real estate attorneys in our Sioux City, Sioux Falls, and Omaha law offices.