When planning any size of project, the key component is research. You should know who you're selling to, what they want, and where they would like it to be located. For example, if you're planning on a building a high-end community, you wouldn't want to place it in an economically depressed area unless you were absolutely positive that there are certain redeeming factors that would attract your desired demographic to your development. Also, you must consider whether your project is a long or short-term investment and whether your infrastructure can handle it.
Let's suppose you've found an attractive stretch of land which is in the path of growth of a moderate-sized city in Costa Rica. We will also assume that you're planning on building a residential community on that property. No matter the type of development you are planning or the location, the same factors will come into play and should be carefully examined.
Once you have a location and an idea, it's time to do some research to develop that idea into an economically feasible plan by creating a project definition. The big question is this: what kind of community should you build? Should it be a luxurious, gated community with expansive lawns and large houses? Would you be better off creating an affordable rental community?
In the United States, several developers found themselves in a bind because they bought large amounts of real estate on credit, built far too many houses, and then couldn't sell them because the local economy couldn't support them. They had to resort to renting their high-dollar homes for cut-rate prices just to keep their businesses afloat, and even then, many are leaking assets like a sieve. Simply put, they did not do the proper research into the areas they were building, and they assumed an upward trend in the economy and growth.
In our hypothetical development, we're going to avoid that trap by looking closely at the business infrastructure of our medium-sized city. Let's say, for a moment, that the city was heavily invested in the service industry. It is based on restaurants and tourism. Now, to support that kind of industry, the majority of the people in the city would be on the lower rungs of the economic ladder, and they would be unable to purchase a moderate or high-end home. A minority of successful business owners would exist, but they would most likely bought homes already. There is always the possibility that tourists would see the development and be able to afford high-end homes, but it's a gamble. In this instance, a rental development would be the most profitable to you because it would be the most beneficial to the community. Alternatively, you could segregate the development between rental homes and homes for sale to reserve some for luck-of-the-draw buyers.
Since we assumed that the real estate is in the path of growth, we'll now also assume that the local economy is a healthy mix of corporate, industrial, and services. That provides a broad spectrum of buyers, and you could estimate the average salary of the area to arrive at a conclusion for your price range. One you have a price-range confirmed, you have established that the local infrastructure can support your development. Jobs will be available for people moving into the area, and those already employed here may be interested in your homes. Now, you must see what the local people want. Do they want a green development? Condos? Homes? Consider what is available in terms of entertainment in the area as well. If the predominant activities are rock climbing and surfing, you certainly wouldn't want to build a condo for retirees. Take everything about the area into consideration. You can't change the people, entertainment, and economy of the city, but you can use every facet of it to your advantage in your project planning.
We will assume that our medium-sized, mixed-economy city has a wide variety of entertainment and that jobs are quickly growing in all sectors. That's an ideal situation. So, as a result, we're going to build medium-sized homes with correlated price tags, and we'll market broadly. Now comes the question of whether this development is going to be short-term or long-term. What's the difference between the two?
Short-term investments are were you gather assets to purchase real estate and build on credit or you already have the funds on hand. The idea is that you will make an empty, ready-to-go community spring up out of nowhere. Long-term investments involve you building homes slowly and growing the community as you go. Each has its benefits and downfalls. For example, you could be completely wrong on the placement of your short-term investment and end up with a bunch of empty houses that won't sell. You would be stuck in the same situation as the developers in the United States. For long-term investments, you could build slowly and get beat out by someone who instantly raised a community close to yours, stealing your customer base.
Consider which investment model your own infrastructure can support. If you create the community all at once, would it ruin you if you didn't sell any homes for a year? Five years? If you are going for the long-term, are you likely to be beat out by someone else and be left holding undeveloped land? You can strike a balance between the two by raising large sections of the community to test the water and saving the rest of the property. One scenario is that you find you've hit capacity for that community, so now you have a section of real estate which can be developed for businesses to serve that community. That could result in significantly higher profits than you had originally planned on.
The key to creating a successful project definition is to know everything you possibly can about every part of the economy, people, and trends around you. Also develop contingency plans to repurpose your investment in the case of a potential windfall or a sudden downtrend. Never jump the gun on a development even if it means you may miss what may appear to be a hot deal. It's always better to spend time planning because the knowledge of the area will be exponentially beneficial in your current development as well as any you do in the future.