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Commercial Retail as Investments


murcivu
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The rule is generally the same no matter where you are.

The construction company is used to construct your own infrastructure and assets, that way all the control is with you also that will make you understand all facets of the business.

 

Thanks Sprite for clarifying the location.

 

I knew it was not in Europe, cause this model of development is not the norm in todays market. This logic of totally controlling the value chain is only appropriate for RE booms or small steady projects, due to the fixed cost that exist in running a construction company.

 

The cost of the HR for the core areas (technicals / engineering / fore-mans / every other blue collar), the cost of licenses for performing the different activities in construction, and the structure and equipments that you need for even a small project, burn a hole very fast in your accounts if you stop developing or if the market slows (if you're also constructing for others). Also with the socialist policies throughout Europe you can't just simply close the company if the market is slow and open on the rebound, so you have to pay everyone and everything on the list, even if you aren't producing.

 

In most markets that we operate, there is a very clear separation between construction and RE development. We control the core areas, such as planning, architecture, engineering, financing and marketing, but all the construction is done by external construction companies, be it by a general contractor or by a pool of contractors, always under our supervising.

 

This way we don't risk our bottom line in RE development, by taking part in businesses with very high fixed cost and capital intensive, that require a lot more of turnover to amortize these costs than the ones that our developments can provide, in a specific time period.

 

With this business structure we have the core know-how for RE development, with the more added value activities, and without incurring in very high fixed cost. We also can be more flexible, and operate in several markets by adapting our projects to the local policies and legislation. This is much more harder to do in the construction business, because of the policies that are in place by local governments to protect the local construction companies. This way you almost have to do a new company in each country that you operate, with a new set of fixed costs (licences, permissions, specific equipments, local licensed technicians and engineers, etc, etc...) to perform your activity.

 

 

But I admit that in bigger markets with unified legislations for construction, where you can operate across several states with the same structure, and there is always some hot market, this could be a more profitable approach.

 

 

 

 

 

 

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Guys I am sorry I can not be more specific about my operations and my location, it's not something I feel comfortable talking about on-line, I am sure you will understand :icon_thumleft:

 

 

If you are looking at a specific development and you want to run some ideas by me you can either post here or PM and I will give you my opinion, not advise, just my opinion.

 

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I knew it was not in Europe, cause this model of development is not the norm in todays market. This logic of totally controlling the value chain is only appropriate for RE booms or small steady projects, due to the fixed cost that exist in running a construction company.

 

The cost of the HR for the core areas (technicals / engineering / fore-mans / every other blue collar), the cost of licenses for performing the different activities in construction, and the structure and equipments that you need for even a small project, burn a hole very fast in your accounts if you stop developing or if the market slows (if you're also constructing for others). Also with the socialist policies throughout Europe you can't just simply close the company if the market is slow and open on the rebound, so you have to pay everyone and everything on the list, even if you aren't producing.

 

In most markets that we operate, there is a very clear separation between construction and RE development. We control the core areas, such as planning, architecture, engineering, financing and marketing, but all the construction is done by external construction companies, be it by a general contractor or by a pool of contractors, always under our supervising.

 

This way we don't risk our bottom line in RE development, by taking part in businesses with very high fixed cost and capital intensive, that require a lot more of turnover to amortize these costs than the ones that our developments can provide, in a specific time period.

 

With this business structure we have the core know-how for RE development, with the more added value activities, and without incurring in very high fixed cost. We also can be more flexible, and operate in several markets by adapting our projects to the local policies and legislation. This is much more harder to do in the construction business, because of the policies that are in place by local governments to protect the local construction companies. This way you almost have to do a new company in each country that you operate, with a new set of fixed costs (licences, permissions, specific equipments, local licensed technicians and engineers, etc, etc...) to perform your activity.

 

 

But I admit that in bigger markets with unified legislations for construction, where you can operate across several states with the same structure, and there is always some hot market, this could be a more profitable approach.

 

 

traxter my guess is that you are working for someone rather than develop for yourself, if you do I understand your views if you don't maybe you should review your strategies.

 

 

Strategies employed depend on the size of the development and the end goal! The developments I do stay with me, I do not develop to sell, passive income is what I am after, not instant gratification, I suppress the size of my involvement in order to enjoy the lifestyle I work for, if I don't enjoy a certain project I will not do it.

 

I am sorry to say but you are mistaken in thinking the formula I apply is only suited during booms and small steady projects, running a construction company as a separate entity is just that, a separate business to the portfolio, when I don't take advantage of if and build for myself at cost the company is out there earning money, where is the disadvantage in that?

 

I was contemplating adding a manufacturing plant for a specific construction material which I constantly use, I was all ready to pull the trigger but I didn't want to do it when I learned how much of my personal involvement was required, I want to enjoy my life rather then accumulating wealth which will have no relevance to my existing requirements and my desired lifestyle.

 

 

Doing your own construction has a substantial amount of benefit, most important the lower cost base , builder's margins can add at least 20% to 30%, when it comes to what matters, sales and leases I can shave $100K to $200k off a nominal $1 mil value asset and still enjoy the same profit margins you are chasing, leases, same thing, I show the same return as you do even if I collect 20 to 30% less than you and this is the key to everything, I don't have to take a haircut here because the market will support my numbers and/or most of the leases are agreed before I move a finger, my ROI is significantly higher than my competitor's.

 

 

 

I don't care where you live as long as you can value add to your chain and you can control most of the links in that chain the strategy works, what stops it from working are the politics of large corporations, they always pay for cost of convenience which is fine, the management takes home fat cheques and the shareholders are told that it was a bad year, the market is down and some other BS large corporations come up with, everybody "wins"!

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