What does a developer of real estate do?
Development of real estate can be seen as the engine that drives success in the real estate industry. Real estate developers purchase land for commercial or residential purposes, on which they intend to build their real estate projects. Such two broad categories range from retail, office and industrial growth to single and multi-family homes. The choices are as limitless as your imagination, but your experience and knowledge will help you develop and flourish in this ever-challenging and often unpredictable industry.
Resources for a professional real estate development career path
An ambitious developer of real estate can start off in several different fields. Some begin as real estate agents, who succeed in selling properties for a profit after buying and improving them. After a period of time, they raise the capital needed to work with an urban or regional planner, architect, and builder to develop, construct, and market a project, such as a new condominium.
Others start their careers in construction, contracting to build homes or commercial property in existing developments and ultimately aquiring partners such as architects and financial asset managers who can help them create their own projects.
While some may go into the development of real estate as entrepreneurs, as in the examples above, most may end up working for real estate development companies that concentrate on particular types of real estate, such as retail or resort development. There is also the opportunity to work for a development consultancy which is hired to help customers create their own projects.
Necessary skills for a developer of real estate
Any professional development needs to be well rounded, as the production of successful real estate is highly complex and includes theoretical, financial, marketing, interpersonal and organizational skills. This is especially true of financial capabilities — developers need these to make the right choices when purchasing, financing, developing, and then selling or leasing assets.
Since people in real estate development have colorful backgrounds and disciplines — they can be real estate agents and brokers, construction professionals, lenders, architects and lawyers — it’s safe to say there is no methodical, set course for entering the real estate development arena. A bachelor’s degree, however, is typically ideal for anyone wanting to step in the real estate field, especially for those who wish to specialize their career. Fields like architecture, planning and law each have their own degree programs but other potential development professionals may pursue a graduate degree in real estate to break into the field, such as a Master of Science in Real Estate, a Master of Real Estate Development or an MBA with a real estate focus. MBAs offer the chance to get vast exposure to numerous aspects of real estate with courses such as Real Estate Development, Real Estate Capital Markets and Urban Systems. With a graduate degree, you can expect to grow your business acumen and make potential networking connections that may prove beneficial down the line.
As significant, if not more so, because your formal education is your experience in the field “on the ground.” A background that works in real estate, as an agent, broker, analyst, and so on, will prepare you for being a developer- but other professional fields also have value. Careers in accounting, distribution, design, and many other related fields can all be important to developer success.
Most of my students have begun to work as commercial real estate brokers where they know both buyer and seller side dynamics ins and outs. In there, they move to assist investors in either collecting debt or equity for transactions. This can be one of the best ways to get educated in development of real estate because to do it well, you need to understand contracts and proforms like the back of your hand – and, together, these two form the DNA of any business growth.
Your social capital, including your technical and personal relationships, would also have an enormous effect on your developer prowess. Simply put, the more people you know, and in a market you have good relationships with, the more effective you are. This includes people like brokers, who can help you find deals, title agents to help you through transactions, lawyers to help with legal issues related to growth, and everyone else who can help make your process more productive and successful.
How to get into production of real estate?
To get started with real estate development there is a relatively straightforward process:
Get some simple know-how
You don’t want to enter any form of investment without knowing market fundamentals. Learn as best you can about the ins and outs of real estate before trying to invest in it. No degree necessary though it doesn’t take long to get a real estate license to cover the topic thoroughly. If you’ve worked at some potential in real estate, you’ve probably already got clear understanding.
Create your Team
If you don’t plan to do it all yourself, find team members who can make it happen. Many developers, legal personnel, architects , engineers, finishers, day employees and more are part of a trustworthy team.
You can create some teams as you go, or work with an existing developer to get started.
Find a real estate or scheme
Find a project that fulfills the investment requirements and makes sense for the capacities of the team. To get started, you can join for more experience in an existing project or look for your own property.
You need capital to buy the property you will be developing, even though you don’t have to pay for it on your own. Working with investors gives you more opportunities for commercial properties, even though you will probably need an experienced partner to earn trust from investors.
Congratulations, Mr President. You have gotten into the production of real estate! Sadly it’s an easy part to get in. That is where the pressure comes from making it a worthwhile investment. Learn all about moving into the production of real estate here.
Real Estate Growth phases
The method of constructing immovable property involves three main phases. Before these stages, there is work to be done including vetting opportunities and buying a property. Finding and vetting a real estate deal is a subject that needs its own space. Talking about the 3 stages of the creation of the land, we are looking at how to proceed after making a purchase.
Every stage of the creation of immovable property is significant. You can’t miss moves, or attempt out of order to do them. If you don’t follow the logical order, then you will possibly make mistakes. Faults contribute to defeat. You’re more likely to end up with a net gain than a net loss by minimizing mistakes and only proceeding with well thought out, reasonable decisions.
After you have finalized a purchase of the property, you will start pre-development before moving on to construction and post-development.
Jumping ahead into construction without going through the design and review process is a catastrophe waiting to happen, just as you can’t go through the planning phase and expect that good results will come in post-development if you’re doing shoddy construction work.
“Each step is there for a reason. If you want to maximize the chances of a successful outcome, go through this process the right way.”
Start predevelopment with a detailed property review. Before the purchase you may have been able to review, but now you need to examine with a critical eye to decide how you can really add value to the land. Hopefully, you’ll have some ideas based on your criteria of purchase.
Pre-development is likely to be one of the longest stages of the cycle of real estate growth, because you want to schedule all your steps. Every issue you can raise and address, so you can handle it before you start constructing.
Comprehending the business
Like a farmer planting a seed, you want to make sure that you select fertile land to grow your “crop.” Different markets would work with different investment strategies-for example, for more stable but less attractive returns, you would want to invest in more expensive low-cap rates markets, for more risk and more returns, you might look at less expensive secondary or even tertiary areas.
Most of the time you want to target markets with strong population growth, a diverse employment base and a well-educated population. It is also a big advantage to be near to urban centers or economic centres.
Locating a Land
It’s time to find a property once you’ve moved to a market. Just as in residential property markets, digital listings are increasingly popular, with sites such as Loopnet, Costar, the major commercial real estate platforms providing retail, shopping, office, manufacturing, self-storage, and other types of property for sale.
That said, given the growing presence of digital media, much of the real estate industry is still face-to – face, and brokers can be great sources of off-market dealing. Your third option is to reach out to commercial property owners to see if they are willing to sell within your designated market. This approach takes a bit more effort, but due to the potential to scoop up a property before other investors get a chance to bid on it can be very rewarding.
Vetting Real Estate
At this point, watch out for things like:
- Property zoning
- Local government policies
- Construction design
- Tenant negotiations
- Cost analysis & redesigns
- Market analysis
- Community public input, when required
“Take your time and do this process well. While you want to get through it quickly to prevent high holding costs, there is something you don’t want to miss that will ultimately erode your profit margins.”
Before you give the order to proceed to the construction team, you can rest assured that everything is ready to go. If you don’t feel comfortable about your plans, continue to prepare or get a second opinion from a trusted source.
Once you send the construction team the go-ahead, it’s your responsibility to track them closely. You may not be the expert in design, but you may hire an expert to help ensure things move smoothly along. This is the most costly stage of the cycle and seldom is there a way to fix an mistake without charging for it.
If you haven’t completed your pre-development research properly, you’ll probably run into more problems during construction. If you addressed the possible issues well, then building will move forward in a fairly straightforward manner. Even if you’ve prepared well, there’s always a possibility something will go wrong.
As part of your monitoring you should ask questions such as:
- Are all regulations being followed?
- Is everything up to code?
- Is the team sticking to the budget?
- Are things happening on schedule or not?
Payment to construction workers is made during the project, based on milestones. Every time a milestone is achieved, it releases more money until all is completed. After you have checked and approved the entire project, the final payment happens.
When you are designing a new construction from the ground up or renovating / modifying an existing or complex structure, you need to keep a close eye on what’s going on. When you are not sufficiently experienced to know when something is wrong, hire someone to keep track of what is happening on the spot. This is vital to ensuring that the building process goes smoothly, and that the team does everything right.
Substandard work is easier to see when it’s completed than when items have been finished and perfected for opening the house. If you cut corners, everything will fail before its lifespan is over, which will cost you a lot down the road.
After building is complete you have two key options. You can either open the building for business to lease and manage it during the post-development stage, or you can sell it. You may also be able to use this as collateral for a larger project loan once you complete the development project.
If you are leasing and managing the property, you should have some clients already lined up. Large CRE spaces should have business tenants lined up before the building is complete, particularly if the property needs an anchor store or if a single business tenant has a larger full space.
Projects for real estate development that take over from outside investors may decide to lease and manage the building until investors have had a chance to return most or all of their initial investment. This is a common practice for multi-family homes, as tenants usually locate and keep more easily. If the property only needs renovations or modifications, existing tenants may stay as long as possible throughout the buying and construction process.
Asset management starts when building is complete. You are responsible for maintaining the house, carrying out the appropriate repairs and for general maintenance so that the asset remains in good condition. At this level, whether the property makes money or not, you are responsible for all taxes, loan payments and other fees.
If you want to sell rather than lease the house, you can be able to make a fast profit and start your next project sooner. With this path, you are more likely to owe higher taxes on capital gains, but the opportunity to bounce off to a new project makes it perfect for those uninterested in handling long-term leases.
Tips to keep an eye on
Here are a few things to think about when you’re in the middle of the process of creating.
Many of our problems can be chalked up to miscommunication or lack of communication in life, and in industry. As a developer, one of your leading roles is to be a facilitator and communicator, working with investors, builders, brokers, financial folks and others. Availability is imperative particularly during normal working hours. People want to know that they can meet you and count on you.
It’s also important to meet your professional partners, where they are. This means getting in contact with people across various channels, including email , text messages, phone calls, and everything else you need to do to keep in touch.
Don’t make decisions which are rash.
In the real estate markets emotional decisions can be a killer. The same applies to reckless, unplanned decisions which some make without thinking about the possible consequences. Be deliberate and fastidious about how you approach every aspect of development, from the procurement of properties to the search for financing, to the conclusion of the deal.
Putting your emotions to the side can be difficult, particularly in some of the highly competitive, highly stressful circumstances that come with being a real estate developer — but remember the words of Teddy Roosevelt- “talk softly and hold a big stick, and you’re going to go far.”
This one goes without saying but we’re going to. Your reputation and legal ability to do business is based on acting in all of your dealings with integrity and honour. Now, that doesn’t mean you need to take every call or meeting or pay a dime more than you would have to pay for a property. It means you’re expected to obey the golden rule and treat people the way you’d like treated.
The real estate world is small, and even if people do not face legal consequences for behavior that is immoral or unethical, potential investors, real estate professionals, and buyers and sellers will hear about it one way or another.
Start at the Beginning
If you’re new to developing real estate, the first move is awareness. Learn more about each stage of the process, from predevelopment analysis to your choices for post-development. There’s no disadvantage in getting to know more about your potential investment field in preparing for a future project.