How to Become a Real Estate Developer
Choosing the perfect time to begin learning how to become a real estate developer is important to your success. Most of the people in this industry today did not start as developers. People can come into real estate development from all types of backgrounds.
To understand how to become a real estate developer, you must consider some key points. Real estate has nearly unlimited growth potential but there are also substantial financial risks involved. Being able to tell the difference between your risk and reward is a skill you must attain.
Real estate is rewarding and challenging. You never reach a point that you know everything. The nature of the industry is always in flux. New strategies are born daily, as new market trends rise and fall.
Experienced real estate developers understand that their experience is valuable. Many people come from professions associated with development, such as banking, architecture, or law. This experience helps them to understand the real estate market as a growing and changing industry.
An investor with 20 years of real estate experience will have obvious advantages over someone just starting out. The main advantage being they have their team of professionals in place.
Development can be as challenging as it is rewarding. The average developer takes 3 – 5 years to reach the point of solid funding. You want to make the jump into development before your fixed overheads are too high. This is because it can take years to become fully established in real estate development.
Having a large mortgage or many liabilities will make it impossible for you to start working as a developer.
Similarities that unite most developers
Creative Thought Processes
To be a real estate developer you are going to have to learn to visualize your investments. A savvy developer can look at a swamp and see a new development, down to minuscule details. This is done first mentally and then it is done financially.
Great Risk Assessment and Aversion
Real estate can be rewarding but it is also worth mentioning it can destroy your finances, if you do not use the proper strategies. You should be able to assess the risk of your investment in exact details. This detail-oriented assessment can help you to achieve a very accurate aversion strategy.
Where there is great reward there is a great Minimize this risk using the skills you learn and a team of professionals.
Great Team Building Skills
Real estate development is a team sport. You are not going to have much success if you attempt to be the lawyer, banker, construction, appraisal, etc.
You should find a team of professionals that have a proven record of accomplishment in real estate related investments. When it comes to real estate development your network is your net worth.
Mentor
As with most skills, a mentor can help guide you through the pitfalls and common errors that newbies make. A great mentor can increase your success rate exponentially by giving you insight into the process.
Real estate development can feel overwhelming; a mentor is a tour guide, showing you the most important things to see along your journey to success.
If you see these qualities in yourself, you may find real estate development to be a great source of revenue for you. A typical career path in real estate development can start with schooling.
This can be done through courses or classes. Many classes will help you find a placement as an assistant project developer, so that you can get hands-on experience.
While you learn the ins and outs of the development process, you should always be focused on networking. The people you meet along your real estate journey will create the backbone of your future strategies. Social media is a great way to begin growing your network.
You should friend active real estate developers, lenders, consultants, planners, engineers, architects, and even city planners. Your network should keep you in tune with the market. This keeps you informed of developing opportunities in your area.
You should consider many different real estate development industry organizations. The Urban Land Institute is a great organization to review. As you start focusing on your development strategy, you will find niche organizations that can link you to the people you need to know to be successful.
Once you join one of these organizations, you will receive access to their database of programs, meetings, and helpful information. You should always try to be active in your development organization. The added tips and techniques you acquire are going to speed up your learning curve.
Many people in these organizations also serve on boards and they can let you know of upcoming changes in your area. This is a great way to find your mentor. A mentor can reduce your learning curve and help you to understand the finer nuances of your strategy.
There are many professions in the real estate development process. Many people make money from this industry without sharing the risk the developer takes.
Below are some of the more common professional careers that thrive from real estate development.
- Market analyst
- Engineer
- Attorney
- Urban planner
- Agent
- Broker
- Architect
- Property manager
- Assess manager
- Lender
- Investor
These service providers are a crucial part of your strategy and it is of the utmost importance to pay them what is owed when requested. Your service providers are key to your growth. If you ever find a scenario where you feel the bill is questionable, you should raise your concern in a respectful manner.
If the matter cannot be explained in a manner you find satisfactory, you should still pay the bill and then find another service provider. Always take care of your service providers. Lunch is a great gesture.
You should choose the most experienced service provider that you can afford within the budget you have. If you go with a small firm, you are going to get a more personalized experience.
It is recommended to use multiple service providers for each category. This will give you more flexibility and keep your pricing competitive.
You need honest, hard-working brokers. Be loyal to your brokers and make sure they are fully paid. Many people think it is easy to get a broker’s license.
This is an extremely short-sighted position that can cost you in the long run. It is good to have 3 or more brokers you work with. A listing broker is easy to find. Follow the money.
You want to make sure you speak to the listing agents directly. This is because, if you work directly with the listing agent, they make more money. This can raise the level of customer service you receive.
Most of the common pitfalls encountered in real estate development occur due to these factors
Greed
If you are only focused on your personal revenue and disregard all other facets involved in the development process, you are going to be left with a product that is low quality and value.
Ignorance
Like any business, venture real estate has its own set of risks involved. You need to understand the gravity of your situation in order to make informed decisions.
Misinformation
There are so many different strategies in real estate. Often, someone will use the wrong strategy because they thought they fully understood the scenario. In reality, they did not and now it is going to cost them.
Real estate development comes down to a core principal: the law of supply and demand. You are looking to fulfill a demand and therefore profit. You should never become emotionally attached to a project.
Always operate with clear market logic. You do not want to go against your market analysis. Having a solid core of strategies is going to increase your evaluation process.
Spotting market trends should be part of your work habit. You should constantly study the data. You should be well informed through the internet and papers. This means reading your organization’s newsletters and staying up to date with new information via your network and internet sources.
Property reports, such as the one found in the Wall Street Journal, can give you insight into your industry. Combining this information with the news from your local network can give you an overview of an emerging trend. Spotting emerging trends can be critical to increasing your ROI (return on investment).
At the core of real estate development is financial analysis. At the beginning of your project, you are analyzing projected costs. This means you are predicting the future. You are visualizing from conception to completion. This includes what it is going to cost to get into the property.
It also includes what it will cost to develop your property and how much cash it will produce. In addition, what you will make on the sale. Accuracy is critical to your financial analysis. Many people will be depending upon your analysis to construct their own projections.
Some people will even outsource their financial analysis. The problem with doing this is you do not know how to explain the numbers. This puts you at a disadvantage. It is not recommended to depend on outside sources for this procedure.
You should fully understand how and why your projections are as they are. The numbers of your investment tell a story. Understanding this story is the key to financial analysis. You do not need to be an accounting major but you do need to understand the numbers.
When you start your career in real estate development, finding investors can seem difficult. This is a common feeling in new developers. Lenders and investors are not likely to invest in someone without a track record.
To alleviate this delay in funding you can do smaller deals on the side. Alternative investors are going to help relieve this concern.
Family and friends can be another source of funding for your first project. Always watch how your ROI is affected with the addition of new sources of funding. You do not want to start paying everyone plus his or her interest and leave yourself short.
Larger deals may require you to associate yourself with an established developer. This sponsored type of strategy allows you to benefit from their experience and network. The obvious drawback to this is you will have to cut them in on your deal but this can be an effective way to find investors.
Starting a real estate development firm can be rewarding; the first step in creating a new firm is to find a great deal that will be profitable for all parties involved. This first deal is critical to your firm’s success.
Investing in a new development firm is like walking on quicksand. Your investor is going to be happy to get out of the hole as quick as possible. It is important to understand that, unlike many industries, you do not always want to go bigger on each deal.
The reason for this is because, if each of your deals is larger than its predecessor, eventually you are going to have one fail. By this logic, your largest deal will be the failure.
If you keep a consistent deal level, you will be able to sustain better when a deal goes sour. Eventually, you will get to the point where you will pass on little deals. You should never push a deal if you cannot see the ROI with ease, it is not worth your time.
Learning how to become a real estate developer means learning how to not only find profitable properties but also explain in uncanny detail the financial aspects of a location. The beautiful thing about real estate development is it doesn’t necessarily take your money to make money. It just takes someone’s money.
The better you are at explaining where, why, and how much the investment will return, the less of your own personal money will be required. By learning the necessary strategies for real estate development, you can share your financial vision with your investors.
The market is full of investors who are interested in great business opportunities. If you find a great deal that you can easily explain, you are going to find it very easy to find the necessary funding.
Country Club Money is money from private sources. These are usually ground up deals. This includes friends and family. This private money usually gets 5-10% ROI before splitting profits 50/50 with the developer. The developer gets 2-3% of hard costs.
Classic Money or hot money receives 15-20% ROI before a 60-40 split. This is institutional money. This is a much more expensive form of financing. The benefit of this model is the access to unlimited funds.
This is eventually going to be the preferred model to follow as your deals become larger.
You should understand the importance of choosing an investor carefully. Even with the best partner, your interests may eventually grow apart. The money part of the agreement will get the final say on most matters, including sales time.
It is better to make 100% of a million-dollar deal than to make 10% of a $10,000,000 deal. The reason for this is the level of control you relinquish when you bring in funding sources. The fewer partners you have, the fewer problems you are likely to encounter.
Your banker is your best financial partner. Bankers understand the business and they can help you to determine the soundness of your strategy.
Real estate development firms are partnerships between developers. These partnerships can leverage the resources of all the parties involved to make a transaction more profitable. This is one of the most effective ways to become successful in real estate development.
Learning how to become a real estate developer can take an investment of time and money. If you have read this and like what you see, you are ready to continue your research. Real estate development consists of just as much personal development.
You must sharpen your skills and stay up to date on the trends in your area. This added awareness gives you the edge. Take your time and choose your team correctly.
If chosen correctly, you will grow together and continue to profit for many years to come. Your partners are a big part of your success, so make sure your trust all parties involved. Not only should they be trustworthy but you should also like them personally. They are going to be your extended eyes and ears.
Follow this advice and watch your real estate empire go from a seedling to a full-blown money tree. Real estate development can change your life for the better. Master these skills and you are sure to prosper. You can start learning the ins and outs of the industry today!