What Does a Real Estate Developer Do?
Real estate development can be thought of as the engine that propels growth in the real estate industry. Real estate developers acquire property upon which they plan to develop their real estate projects, whether for commercial or residential purposes. These two broad categories encompass everything from retail, office and industrial development to single- and multi-family homes. The options are as endless as your imagination, but your experience and education will help you grow and succeed in this sometimes volatile and always challenging industry.
How to Become a Successful Real Estate Developer
In the real estate industry, there’s more than one way to skin a cat. Real estate developers are entrepreneurs that identify prime real estate, develop the property, collect rent from lessees or sell developments for a profit. To become a successful real estate developer you need more than deep pockets.
You need to foster key relationships, have a deep understanding of the market and your own vision, and you also need to build a team whose connections will help you succeed. These are a few vital elements to get you thinking about being a mogul.
Learn the Basics
At the very least you have to obtain basic knowledge about real estate transactions, construction, contractors and urban development. Success is impossible without understanding the basics of this industry. If you don’t have the means or inclination to obtain a degree in finance or construction management, you need to find work in the real estate business so you are familiar with key elements of property development. Some real estate licensing programs allow you to obtain a license within three to six months, and the knowledge you acquire in this type of program can give you a solid foundation.
Understand Your Market
It takes years for developers to thoroughly understand their local market, which is why it’s important that you align yourself with an expert in local properties. In other words, you need to find an experienced real estate agent and form a business alliance in which that person alerts you to prime commercial properties. This is also important in helping you to define the parameters of your market.
For example, will you focus primarily on developing commercial properties or will you focus on developing residential properties? There are huge differences in each of these development sectors in terms of investment and profit opportunities.
Set Small Goals to Start
Rome wasn’t built in a day and your real-estate development career isn’t about sprinting out of the gate and trying to develop the biggest property on the market. Set attainable goals such as acquiring one property for a cheap price, developing it and then selling it for a profit. By going through the development process on a smaller scale, you will be able to better understand the challenges you will face such as permits, zoning, construction delays and contracting issues.
Handling these problems on a smaller level will give you the confidence to deal with issues on a much larger scale and provide you with invaluable on-the-job-training.
Build Your Team
Real estate development isn’t a solo endeavor, which means you have to build a team of experts that will compensate for your lack of experience. Typically, you will need a certified general contractor with a good reputation, a designer, a group of engineer’s to help resolve problems such as structural, a lawyer, a finance guru, a zoning expert and someone who has a thorough understanding of zoning restrictions, licensing and permits. Chose wisely, don’t connect with those who are self serving or will not add a substantial value to your overall goals and business plan.
Additionally, don’t offer to start a development business with those who have less experience than you, and don’t hire a general contractor if his current job is a project superintendent. Partner only with those who’s experience is equal to the task you set out for. These separate sets of skills are essential to helping you handle the myriad of issues that will arise when you’re developing a sizable project.
Focus On Effective Communication
Learning how to communicate via different methods and with different people is key. Real estate development involves a lot of moving parts, which require many people. Effectively communicating your expectations, goals, wants and needs with respect is vital to seeing the project through to completion. The other half of communicating effectively is learning how to listen to others when they have worries and needs. It is important to always show others that you are open to hearing from those around you.
Real Estate Development Professional Career Path Options
An aspiring real estate developer can start out in many different fields. Some start as real estate agents who, after buying and improving properties, succeed in selling them for a profit. After a period of time, they may raise the capital necessary to work with an urban or regional planner, architect and builder to develop, build and market a project, such as a new condominium development.
Others begin their careers in construction, contracting to build commercial or residential property in existing developments and eventually taking on partners such as architects and financial asset managers who can assist them in developing their own projects.
Although some may go into real estate development as entrepreneurs, most will end up working for real estate development companies that focus on specific types of real estate, such as retail or resort development. There is also the option of working for a development consultancy that gets hired to help clients develop their own projects.
Necessary Skills for a Real Estate Developer
Every development professional needs to be well rounded, as real estate development is extremely complex and requires analytical, financial, marketing, interpersonal and organizational skills. This is especially true with financial skills—developers need these in order to make the right choices when purchasing, financing, developing, and then selling or leasing properties.
Starting as Small-Scale Developer
People who are interested in real estate development typically come from a wide range of starting points. A lot of them already have a fair amount of skill in one aspect or another of the built environment. They have been a contractor, broker, planner, activist, architect, or property manager. They know enough about how things work to recognize that they have a lot to learn outside of the field that originally led them to development. Skills valuable in the real estate development realm may be grouped something like this;
- Site selection, urban design, site planning and civil engineering
The price paid for securing land is the single most critical variable in beginning stages of a real estate project. Therefore, understanding what the site can and cannot do and how a building sits on the site to create value are paramount considerations. These four skills help a developer compare many sites against each other, fit in with the neighborhood and surrounding communities, and deal with soil, water and utility conditions.
This term refers to what the owner of the land is entitled to do with it, which is typically governed by the local municipality’s zoning code. A developer must evaluate what can be done with a site under the existing rules of setbacks, parking requirements, building size and height – or measure the risk associated with changing its classification or getting a variance. Equally as important as the written word is knowing the people who administer the processes involved in obtaining approvals.
- Real estate deal structure, pro formas and finance
Money and contracts are the heart of any real estate project. In a typical arrangement, the project has an operating partner, the person in charge of the whole process, and a capital partner, the person supplying seed money for a percent return on their investment. Together, they will seek additional financing in the form of a loan. A pro forma is a spreadsheet that tracks how the development makes money in rent or sales and how that income is distributed to its partners and the bank.
- Building design
Otherwise known as the architecture, electrical, mechanical and structural engineering, this is the know-how that makes a building perform well and be dignified. A deep understanding of building codes can help the small developer optimize the size and functionality of individual units while avoiding costly construction methodologies or mechanical systems. Context appropriate exterior detailing and quality material selection can both gain favor with the neighbors and help the building stand the test of time.
- Construction and construction management
There are two key groups who make the construction or renovation of a building happen: skilled tradesmen and project managers. Leveraging the knowledge and work effort of the electricians, plumbers, welders, carpenters, roofers and installers is either an owner’s representative, construction manager or management firm or a certified general contractor. Regardless of the size and type of project, small developers need to carefully manage the process and risks involved in construction with thorough planning and contingency reserves.
- Marketing, sales, leasing and property management
Once you have a building, it must be sold or frequently leased and maintained. Real estate agents and brokers handle many of the steps to attracting tenants or buyers and prepare the appropriate paperwork to ensure qualified applicants. If the developer is retaining ownership of the property, someone must answer the calls to unplug toilets and plan for big replacements like water heaters and roofs. This is typically handled by a property manager.
- Project and business management
There are many details to keep track of and people to communicate with to make a real estate project move forward. Also, someone needs a good handle on business finance to guide the cash flow throughout the lifecycle of a project. The small developer needs to make intentional decisions about where along the development process they will make money and structure their tax and business arrangements to maximize those positions.
Very few people master all of those skills. If you start with small projects, you can gain an overview, and understanding when they are needed at the various stages of a project. You get a sense of the basics for each skill set. If you don’t have the skill which the project requires, you can’t go without. So you should borrow or rent the needed skill. Look for people who are genuinely interested in your project and who are actually happy to teach you about their specialty. A developer does not have to know everything, but they should have a good idea who to call or team up with before it is too late.
The Fond Organization is looking for people who are happy to work in one or more of the 7 skills sets. They will evolve their skill sets to become a developer themselves or be the mentors or colleagues to encourage those on the path. Fond may also assist with the funding of projects for those who already have some completed data such as business plan, executive summary and projected financials.
For more information, email the Founder of The Fond Organization for further information;
Anthony Fond – Anthony@fondllc.com