Start Small: The Best Choice for New Multifamily Developers
Discover why starting small could be your winning strategy for getting into multifamily development, turning humble beginnings into larger successes with our guide.
- Understanding the Merits of Small-Scale Projects
- The Manageability of Small-Scale Projects
- Lower Financial Risk
- Hands-On Learning Opportunity
- Case Study: Finding Success With 10 Units
- Overcoming Initial Hurdles
- Lessons Learned
- Success and Confidence
- The Learning Curve: Gaining Knowledge Through Experience
- Practical Insights Into Property Management
- Understanding Market Dynamics
- Nurturing Relationships With Contractors and Lenders
- The Power of Networking
- Conclusion: Embrace the Power of Starting Small
- First: Baby Steps
- Turning Baby Steps Into Giant Leaps
- Your Journey Begins Here
- Get Financing
Navigating the multifamily development landscape as a first-time developer can be daunting. Starting small, however, can pave the way for a successful career.
Understanding the Merits of Small-Scale Projects
Small-scale projects, such as a 10-unit multifamily development, serve as an excellent training ground for beginner developers.
Instead of jumping headfirst into a colossal project, first-time developers have the chance to acclimatize to the unique challenges and opportunities the real estate market presents on a more manageable scale. Also, critically, lenders are far more likely to provide construction financing to an inexperienced developer if the project is small in scope.
The Manageability of Small-Scale Projects
The manageability of small projects cannot be overstated. Fewer units mean fewer permits, less extensive construction, and consequently, a reduction in the potential problems that could arise. For instance, coordinating the construction or renovation of 10 units is significantly less complex than managing a 50 or 100-unit development.
Lower Financial Risk
When starting small, the financial stakes are lower, and so are the potential losses. A mistake on a $1 million project will cost significantly less than on a $10 million development. These smaller projects allow for a financially safer space to learn, make mistakes, and grow as a developer.
Hands-On Learning Opportunity
Smaller projects offer more opportunities for hands-on involvement, which can be an invaluable learning experience. With fewer units to manage, you can delve into the details of project management, learning the ropes of construction, dealing with contractors, understanding local zoning laws, and managing property operations.
Case Study: Finding Success With 10 Units
Let's take Patricia as an example. Patricia was a first-time developer who had her eyes set on building a 10-unit apartment building. Despite having a solid background in real estate investments, stepping into the development side was a new challenge.
Overcoming Initial Hurdles
Patricia faced her fair share of initial hurdles: unexpected construction delays due to adverse weather, complex permit issues, and budget overruns. However, she met these challenges head-on, finding solutions like negotiating with her contractors to speed up the post-delay process and working closely with her local government to resolve all permit issues.
Lessons Learned
While these setbacks were stressful, they provided Patricia with first-hand experience in problem solving and project management. She learned to factor in buffer time for unexpected delays in her timeline and realized the importance of having a contingency budget. These lessons became invaluable as she moved onto bigger projects in the future.
Success and Confidence
After successfully completing her first 10-unit development, Patricia gained not only profit but also increased confidence and credibility. This initial success served as a stepping stone for larger projects, and she had concrete proof of her capabilities as a developer to show potential lenders and investors.
By starting small, Patricia was able to gain a comprehensive understanding of multifamily development and build a foundation for her future successes. She later successfully completed a number of other developments ranging from 10 to 30 units, culminating in her move to larger projects of more than 100 units.
The Learning Curve: Gaining Knowledge Through Experience
Every multifamily development project is a new journey of learning and growth, especially for a novice developer. The practical experience gained from these projects is invaluable and contributes to building a robust knowledge base for larger ventures.
But how, exactly? Here are some common ways that smaller developments prepare you for the larger ones in your future.
Practical Insights Into Property Management
Managing a smaller property gives you the opportunity to understand the nuances of property management. This includes tenant acquisition and retention, maintenance issues, financial management, and adherence to legal requirements, amongst other things. These experiences provide a holistic view of property management, preparing you for managing larger projects.
Understanding Market Dynamics
Small-scale projects offer a firsthand experience of the market dynamics, including the local demand, competition, rental rates, and economic factors impacting real estate. By starting small, you have a lower-stakes opportunity to learn how to interpret market signals and use this knowledge to make informed decisions.
Nurturing Relationships With Contractors and Lenders
Relationships are key in the real estate development business. With smaller projects, you will work closely with contractors, lenders, real estate agents, and local officials. Each interaction is an opportunity to nurture these relationships, understand different perspectives, and build a solid network for future projects.
The Power of Networking
Networking is not just about creating opportunities for future projects, but also about learning from the experiences of others. Conversations with contractors could provide insights into common construction challenges, while lenders could offer a glimpse into the financial evaluation of development projects.
Conclusion: Embrace the Power of Starting Small
The journey of multifamily development can appear intimidating at the outset. But remember, every giant leap begins with a single step. Starting small provides you the learning experiences, confidence, credibility, and relationship-building opportunities that are integral to scaling up in the future.
First: Baby Steps
When talking about baby steps, this isn’t just limited to the size of your initial project. It extends to every aspect of your development journey — from learning about market dynamics to understanding the financial intricacies, and from managing a small team to leading larger groups.
While starting with a smaller project may feel like you’re limiting yourself, just remember: The important thing is that you’ve started. Keep at it, and this will pay dividends.
Turning Baby Steps Into Giant Leaps
Each completed project, irrespective of its size, contributes to your growth as a developer. The skills and experience acquired from small-scale developments provide a firm foundation for you to take on larger, more complex projects. As your confidence and credibility grow, so will the scale of your projects.
Your Journey Begins Here
So, to first-time multifamily developers embarking on their journey, don’t worry that your very first project won’t be some gigantic, 500-unit complex. Starting small will keep you plenty busy, and you’ll be far more suited to successfully develop larger properties later on.
If you’re looking for financing for a small development, we can help you. Drop your details into the form below, and we’ll get started on matching you with your best loan options.