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Managing Development Risk

Funding Risk

  • House ExchangeHave a backup plan for how properties might be developed in a different way if a target funding source falls through (for example, can a homeownership project be restructured as a rental project supported by tax credits?)
  • Consider using a land bank in which to place properties after acquisition and while pursuing funding or redevelopment opportunities
  • Evaluate the organization’s ability to repay short-term acquisition or predevelopment financing if the deal does not go through, before borrowing such debt

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Site and Property Risk

  • Conduct adequate due diligence on each property:
    • Title search
    • Investigate past uses of the property
    • Zoning
    • Property inspection (interior and exterior)
    • Appraisal

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Construction Risk

  • Home, constructionBuild an adequate construction contingency (at least 10%) into the budget
  • Utilize appropriate construction management
  • Carefully document decisions made at construction meetings
  • Obtain and file warranties
  • Obtain certificate of occupancy

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Absorption Risk

  • Carefully research the market to determine its ability to absorb housing stock (is the market overbuilt?)
  • Carefully research the amenities that buyers or renters will demand and price points that are sustainable for various income levels
  • Talk with professional property management firms and/or Realtors® for advice on the project and for marketing assistance
  • Evaluate holding costs and budget the project to sustain an extended holding period in distressed markets

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