In the real estate investment business, there are several ways to make money that go beyond being a real estate investor or a real estate realtor. One alternative that is worth exploring is becoming a real estate developer. But how is a real estate developer different from a real estate investor? How do you become a successful real estate developer? These questions are answered thoroughly in this blog.
What is a Real Estate Developer?
A real estate developer is a real estate entrepreneur who finds land plots with the aim of creating a new building to sell or lease after (from small-scale housing developments to commercial malls). Real estate developers also buy real estate and make improvements to already existing properties. A real estate developer is the master of this process; his/her role is to finance the development project and oversee all the details from dealing with contractors and engineers to negotiating with interested real estate investors.
As you can tell so far, being a real estate developer is not an easy career, it comes with huge risks where you can either make high profits or face the worst- suffer crushing losses. So, how do you become a successful real estate developer?
First: Build your personal foundation by education
The first step to success in real estate development is to get proper real estate education. You might think that you are ready to become a real estate developer because you flipped a house or two in the past and made some money. Chances are you got lucky! To succeed in the real estate development business, it is recommended to have a degree in construction management, finance, law or urban development. However, if school is not your thing, it is not a problem at all. You can always get your real estate developer training by working with someone in the real estate business. This way you will learn from real estate experts while building your credit score and basic knowledge you need to become a real estate developer.
Second: Build relationships and a real estate investment network
A successful real estate developer is one who creates and maintains relationships with different professionals from all fields related to real estate. Building connections with great contractors, engineers and designers means that you surround yourself with a group of professionals who you can rely on to understand your visions concerning the real estate development project. In addition, forming good relationships with financial institutions and governmental bodies is crucial, to negotiate loan terms and facilitate zoning and building permits issues.
For more about the importance of building a real estate investment network read: Creating a Real Estate Investment Network: Who Do You Need?
Third: Tolerate risks and learn how to mitigate them
As a real estate developer, it is very important to learn how to deal with risks and accept their presence in the development project. A successful real estate developer is someone who can sleep at night knowing that his/her entire net worth is riding on the success or failure of a project.
To have a better grasp over the real estate development project, make sure to define all risk sources that you might face. A simple list would look like this:
- Land value risk: Will the cost of land you acquired change due to market circumstances?
- Planning permit risk: How long should you wait until you receive building permits?
- Construction risk: Consider pricing, quality, and possible delays.
- Revenue risk: How sure are you that your development is going to generate revenue?
Related: 8 Tips to Mitigate the Common Risks of Becoming a Real Estate Investor
So, you identified the risks that may occur during the life cycle of your real estate development; now is the time to mitigate those risks. Research is essential in assessing all kinds of risks; learn how to do it. You will find it useful when dealing with a development project problem. One of the key elements you need to succeed as a real estate developer is having good problem-solving skills that all real estate investors should have. A thorough research will not just help you mitigate risks, it will also prepare you to deal with the expected and unexpected problems and learn how to solve them.
Fourth: Know your market!
Always keep up with the latest trends in your real estate market. As a real estate developer, you would be interested to know which real estate market trend is in demand in your area. If you are not a market expert, make sure to find a good real estate agent who is familiar with the market and can help you make decisions!
Fifth: Establish a legal entity
As we have seen above, a real estate development project can present high financial risks. Because of this, forming a business entity is very important to provide you with liability protection in case the development fails. A legal entity can be a corporation or a limited liability company. However, such entities can mean higher fees when compared with a simple partnership. When compared with the personal cost you could face, these fees are worth paying.
Sixth: Be patient!
Patience is a virtue, especially in real estate development. Take your time and plan for an extra few months to account for unseen changes in schedule and delays. When it comes to real estate development, it can always take longer to realize a project and get all the permits needed.
If you are interested in learning more about what it takes to become a good real estate developer, make sure to read this blog: 7 Characteristics of a Successful Real Estate Developer
The Bottom Line
Becoming a real estate developer has its pros and cons. If you are a hard-working individual with good education or experience in real estate and a strong ability to tolerate risks, then this career might suit you. Otherwise, look for different careers in the real estate business.
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