On a real estate development project, the developer may not be the one doing all the work but is the one who’s ultimately responsible for making sure that all of it gets done. The scale of the project may be as small as a single-family home or as massive as Hudson Yards in New York City, yet the role of the developer is the same: planning, financing and execution. That in turn entails selecting and hiring the team that will bring the project to fruition.
Becoming a real estate developer is not always a straightforward process, because there are numerous pathways for getting there. Construction, municipal planning, finance and real estate brokerage all may serve as starting points for a career in development.
While you don’t need a degree in real estate to become a developer, the basic requirements for becoming a developer are a bachelor’s degree in a related field and, in most states, a real estate license. Certification such as the Realtors Land Institutes Accredited Land Consultant credential can help boost your credibility. Also, any experience you’ve obtained in one of the various aspects of development, whether it’s construction or fund-raising, is likely to prove valuable later on.
Beyond that, a would-be developer needs an entrepreneurial mindset, an aptitude for research and analysis to predict the viability of a project, attention to detail, problem-solving acumen, the determination to see a project through despite obstacles and delays, and a hands-on attitude toward managing the process.
According to Marsh & Partners, “The skills required to complete a development project cross over many traditional real estate functions. On a daily basis, a real estate developer could have their hands in any of the following fields: negotiation, land acquisition, site selection, land planning, feasibility studies, building design, real estate development budgets, market entry studies, financial modeling and analysis, land entitlement, construction and project management, interpersonal skills, building cohesive teams {and] structuring land contracts.”
Although a few developers have gotten their start fresh out of college, generally they’ve gotten a head start by growing up in the family real estate business and becoming familiar with the workings of a development site at a young age. If you don’t come from a real estate family background, it’s recommended to proceed into development only after you’ve gotten at least a few years of real-world experience in real estate, such as getting a job with a development firm as an associate or analyst.
Starting off small as a developer with a few rehab projects can help establish a track record among investors and other future stakeholders.
The Real Estate Development Process In Three Phases
The life cycle of a project can be divided into three phases.
● Planning
● Financing
● Execution
We will dive more in depth into each of the real estate development phases in the next few sections.
Planning
In the planning phase, the developer is responsible for locating the property on which to build or, in some cases, redevelop an existing asset. That means not only finding the right parcel for your project—with a few alternative sites in case the first one has been acquired by someone else by the time you’re ready to begin—but also understanding the demographics and macroeconomics of the local market.
You need to think about everything from start to finish. What do you plan to build—what type of property and how large will it be? Is there now or is there likely to be demand for whatever you plan to build? What kind of demand? Are you building in a fast-growing market or a mature one? Do you intend to operate the property long-term after completion or sell it to investors? Are there potential roadblocks to realizing the project and if so, how do you plan to get around them?
Once those questions are answered, you’ll need to bring in an architect to draw up plans, whether for a ground-up development or for renovation of an existing property. Then comes dealing with government and abiding by the rules and codes.
“Though it was different in times past, there is not a single area of the United States where you can just build whatever you want, how you want,” says Anderson Advisors. “Every area has its own local zoning and building codes, along with state and national requirements.” You may be able to proceed with your project, and obtain all the necessary permits, under the existing zoning, or you may need to begin the process of having the parcel or the neighborhood rezoned.
Depending on the neighborhood and the type of project you’re planning, that rezoning may entail months or even years as well as frequent outreach to the local community. If the project is controversial at the community level, defending against a lawsuit meant to derail the project is a possibility.
“You need to be a politician to run a real estate development company,” advises Daniel Kodsi, CEO of Royal Palm Companies and a member of the Forbes Councils. “Frequently you’re dealing with tough and stressful situations where there’s a lot of money on the line and a certain level of finesse is required to find solutions. Whether you are talking to your own team, city officials, contractors, buyers or investors, you constantly have to be confident and know what you’re talking about.”
Financing
Once you’ve confirmed that your project is a go, then comes the financing phase. Unless you are in a position to bankroll the project with your own money, you will be relying on debt and investor equity for all project expenses, from acquiring the land to construction. Equity may come from those within your established network or from new sources.
To ensure that your network is as broad-based as possible and to help reach investors, consider joining groups on professional social networking platforms, such as LinkedIn. In-person events are coming back, and you can find networking opportunities there as well.
Investors and lenders alike will perform their own risk assessments before committing any funding, and it’s hard to make a case for an unknown quantity. Since both attracting new investors and securing debt from lenders can be challenging to a developer without a track record of success, consider finding a development partner.
A partner with an established history of successful projects may agree to backstop your project, provided you are able to present a compelling plan. A smaller development firm may sign on as co-developer, with each partner responsible for a certain share of the expenses.
Whether you’re partnering on a project or going it alone, it’s advisable to go into it via an entity, rather than being personally liable. “You do not want to be conducting this type of enterprise under your own name, especially given the number of things that can go wrong,” Anderson Advisors says. “If projects fall through, investors may come knocking at your door to get their funds back. Accidents can happen on the construction site. Projects can veer off schedule and over budget, putting you and your goals at risk.” You can avoid this type of exposure by forming an LLC or corporation.
Execution
Once the planning is completed and the financing is in place, execution of the project can begin. However, reaching the home stretch of the development cycle doesn’t mean that it will be a smooth ride from here on in. Experienced real estate developers can share plenty of anecdotes that prove this often isn’t the case.
For one thing, you will need to have a team assembled. You’ll be working closely with a general contractor, civil engineer, designer & architect, land-use attorney, lender, environmental engineer, and surveyor. It’s a process you can begin through networking. “You’ll need to make connections to people who can assist you with funding, land acquisition, marketing, and client identification,” says business consultant Charles McMillan, the founder of Stand With Main Street.
Making sure you have a team that are all on the same page regarding your intentions for the project is one necessary step. Establishing a code of conduct for the team is another. FortuneBuilders says, “Maintaining an ethics and integrity standard is paramount to the success of any business owner and is what will set your enterprise apart from the rest. Because developing a real estate property involves many professionals contributing to a finished product, their work and conduct will all reflect upon your brand. This is why establishing and communicating a code of morals and integrity from the very beginning is necessary.”
Once the team is assembled, you’ll need to set up contracts with the construction crews, “which can become a tricky enterprise on larger building projects with diverse teams,” Anderson Advisors says. “Oftentimes this is the most difficult part of real estate development, and the part that puts a project behind schedule—so the best real estate developers are also competent on-the-ground managers.”
Even with good project management skills, though, the unexpected can happen. “No matter how prepared you are for a project, it will always take more time and money than you think,” says Kodsi, who cites that truth as one of three he wishes he knew before beginning what has been a successful 30-year career in development. “Approvals, code changes, market fluctuations and financing issues will always cause delays or add costs. I once had a project that was ready to be completed and couldn’t get water meters from the county. A municipal detail held up my closing.”
Conclusion
Once the project is completed and ready for occupancy, the work of the developer isn’t done. Whether you’re planning to sell the just-finished project and move on to the next one or operate the project as an income-producing property, you need to market it. That’s true whether the real estate climate is positive as you complete the project or beset by headwinds, such as an economic downturn.
Part of this process involves mounting your own marketing campaign: through paid ads, social media, email blasts and so forth. Another aspect is hiring a brokerage to help you sell the property or lease it up, depending on your intentions for it.
Real estate development can represent a rewarding and fulfilling way of earning a living. However, it’s not a pathway for getting rich quickly. A handful of extremely high-profile developers can make millions on a project, whether from the operating income or a sale to investors. More typically, though, a developer’s salary is in line with that of other white-collar professionals.
According to GlassDoor, the estimated total pay for a real estate developer in the U.S. is $105,047 per year, with an average annual salary of $84,182. The estimated additional pay of $20,865 per year may come from cash bonus, commissions, tips and profit sharing.
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