How do you know when to expand? You want your hotel chain to grow as well as your equity in the property, but when do you know the right time to build? There are many factors you must take into consideration. The first is market growth. Is the housing market on the rise, or has it stabilized? If building is on the rise, you may want to think very carefully about adding onto your property. When there is a housing boom, contractors are anxious to create new projects that they know will increase in value even before the last screw is in place. This makes perfect sense. If money is being made in real estate, then the goal of the Builder or contractor is to create more real estate to add to the marketplace. If you calculate This at the time of building, that he will increase his profit by 50%, he knows very well that by the time the project is over is profit margin will have increased.
So they build and build and build. The downside to that, is that building supply companies are also seeing the same rise in the market. Therefore they can increase the price of their supplies, and even sell bulk building supplies to certain contractors on contract. That means that a builder agrees to buy a certain amount of material and then locks in the current market price for his goods. This gives suppliers a bulk sale, and the builders avoid inflated costs. This method can create a shortage in very needed building materials, and could cause the price to rise and or create bidding wars. Even hotels are not free of this problem. So even though you could build and increase the value of your real estate, you have to realize that the cost to do so will also be on the rise.
On the other hand, it’s a real estate market is in a decline or stabilized, building could be at a slower rate, and supply companies could be holding onto a lot of material that is not in demand. So even though the value of the equity will not show great gains right away, you could probably buy all of your building supplies at a discount, and complete your project at a much lower cost. So when the market does Rebound, you will have created a great amount of equity in your structure a much reduced rate. So when you were thinking about building Auntie or structure, keep both of these factors in mind.