What Are the Risks in Real Estate Development?

July 14, 2025 | Kristi Kandel

ASK:

What are the biggest risks in real estate development, and how can I avoid them?

ANSWER:

At Local Real Estate Developer (LRED), we believe risk isn’t a deal-breaker. It’s a signal to build a stronger plan. Every developer faces real risks: cost overruns (both hard and soft costs), permitting delays, interest-rate spikes, thin contractor pools, and underwriting mistakes that can quietly sink a deal.

The truth? Most small-town developers don’t fail because they picked the wrong site. They fail because the spreadsheet assumptions were wrong, the contingency was missing, the GC scope wasn’t clearly defined in the contract, or the financing fell apart at the closing table.

Our Mentorship Program stress-tests your assumptions before you spend real money. And our Development Operating System (Dev-OS) helps you manage risks in one location so you’re not chasing approvals or budgets across five email chains.

KEY TAKEAWAYS:

• Cost creep and permitting delays are the #1 budget killers. Build in a 10–15% contingency.
   
• Dev-OS centralizes your project management so you never lose track of a deadline, budget, or approval.
   
• Lock interest rates or caps early and line up backup lenders in case the deal needs to pivot fast.
   
• LRED mentors review your proforma assumptions, capital stack, and contracts so you don’t miss critical details.
   

PEOPLE ALSO ASK:

What are the most common risks in small-town development?

• At LRED, we see utility surprises, soft comps, and finding reliable contractors as some of the biggest risks in smaller markets. We help you plan for these before you get stuck.

How do I make sure I don’t lose everything if a deal goes bad?

• Start by protecting your downside. At LRED, we teach you how to build buffers like contingency funds, backup lenders, and smart partnership terms so you’re never overexposed. You can take risks without risking everything.

What happens if permits stall?

• LRED shows you how to stay on good terms with city staff, keep your timeline flexible, and structure your financing to survive delays. When the city slows down, you’ve still got options.

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