The vibrant Canadian real estate market is in full swing and looking to carry on for years to come. There are now dozens of ways to transform your capital into a sound real estate investment. Few are more comprehensive than developing a raw property. While undeniably complex, property development can prove extremely lucrative to those willing to put in the work.
Table of Contents - How to Develop a Property
Know where you want to buy
Before you can find a property to develop, you have to find a suitable location. Ideally, you will be able to purchase a raw property (that is, undeveloped land) near a population center of some sort. Where traditional real estate investment means knowing the hot, new neighbourhood, the key to successful development is understanding which places will be popular a year from now.
Fortunately, due to the ever-rising price of property in Canada, the odds are good that there is a property to develop somewhere in the vicinity regardless of where you live.
The cost and length of your investment
Traditionally, property development comes in one of two varieties. You can either find a parcel of land you hope to build on, or you can purchase a piece of property that you intend to hold onto.
The first method dictates a more active involvement in the development process. Once you secure financing, you’ll have to hunt down a reliable contractor, investigate local regulations, etc. This development method requires a more significant capital investment, but it allows the developer to sell the property in a relatively-fixed time frame.
Holding onto the land involves simply waiting until another developer comes to you with an offer. It’s undoubtedly the less complicated of the two. It also offers a much more cost-effective entry point for new developers. That said, once you set your own the property, it’s up to potential buyers to come to you with offers. Sometimes that means getting lucky and flipping the property in a year or two. More often, though, holding the property means owning it for several years to come.
Get a lawyer
The first thing to do if you’re serious about property development is to find an experienced real estate lawyer operating in the province where you intend to develop. The regulations governing property development in Canada can change dramatically depending on the province where they’re located. That means when you’re hoping to develop raw land, the smart decision is to enlist the help of a lawyer comfortable working within the scope of a given province’s laws.
Even as you hire a lawyer to suit your needs, you should also familiarize yourself with the development laws governing your specific province. Once you hire a lawyer, they should be able to point you toward some resources that outline the fundamentals.
Before you can build, you should know what your ultimate goals are. Do you want to develop residential real estate or commercial? The answer will depend largely on your property’s location, but the guiding principle behind your response should depend on one simple factor: real estate developers are there to serve a need. That is, when you buy a parcel of land in a community, you should be on the lookout for what isn’t there.
For example, let’s say you buy a piece of property in a remote community where new housing development is going up. Creating a commercial space where residents can visit a grocery store or laundromat could provide ample return on investment. Here’s another one: maybe you’ve noticed the rent in your community is rising. This is an indication that population density is spiking in your area. A developer willing to invest in a multi-unit apartment building could take advantage of that density with as little as four rooms.
Research the property
There’s more to every piece of real estate than meets the eye. Before you put down any capital, make sure that you do your homework. First and foremost, determine what the property is zoned for. If you want to develop a commercial property, it doesn’t pay to purchase or lease a property that’s zoned residential. Look for liens on the property, any debt the seller owes and any taxes that have gone unpaid. It’s also worthwhile to hire a land surveyor to pinpoint the boundaries of the property and its overall condition.
If you want to be especially thorough, you should also try to determine if the land surrounding your property is showing signs of contamination, as well.
Buying vs. leasing
Inevitably, you’ll be forced to consider whether you’ll lease your development property or purchase it. Several factors play into the answer. If you’re short on capital or you’d like to avoid the extra paperwork associated with owning land, then leasing is probably the best call. However, if you want to exert more control over your development project or you’re looking to secure a specific property for the future, you should look into purchasing.
The letter of intent
Once you’ve located the perfect property for your needs, you’ll have to craft a letter of intent. Don’t overlook the critical importance of the LOI. Here are some tips to make yours more effective:
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- Be very clear in your letter that you state your intent, and nothing more. Take steps to prevent your letter of intent from unintentionally turning in a bill of sale.
- Keep your letter of intent simple. It’s not a contract; you don’t need to ensure that everything is spelled out in crystal clear terms.
- Make sure that your letter of intent includes a concrete acceptance deadline. After all, you don’t want to waste your time waiting for an answer that may never come.
- Make sure that your LOI clearly states that your real estate lawyer will be drafting the purchase agreement. This puts a significant portion of control of the deal in your hands.
Your real estate lawyer should have little trouble helping you craft a letter of intent that serves your needs rather than subverts them.
How To Become A Property Developer
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