Thinking about becoming a real estate developer?

Real estate development is about constructing commercial, residential, and industrial properties for investment purposes. In order to do so, a real estate developer should have a good understanding of fundamental real estate. And a good understanding for how real estate transactions take place as well. To gain such an understanding, an individual looking to enter the world of real estate development, might want to first obtain their real estate license.

State real estate licensing courses, and the process of becoming a licensed Realtor, could be completed within a few months. Whereas obtaining a college degree, with course work taken, and an applied focus placed upon construction management and finance, might be cost prohibitive. And time consuming too. Yet a college degree, with applicable studies completed, is often considered to be the ideal path to take. The most famous real estate developer right now might be, President Donald Trump. Donald Trump first earned his college degree in economics from Wharton. Then Donald Trump became a real estate developer.

A real estate developer will want to have an in-depth understanding of a number of topics which relate real estate development. Among them? Construction. Finance. Contractors. And city planning as well. Thinking these through, let's look at a "land bank" example, for instance.

Land bank real estate - aka, the land bank properties - is but one component a real estate developer might want to understand, in order to consider a development project based upon acquiring land bank properties. In this land bank example, the real estate - aka, the land bank properties - could be coupled to, say, the neighborhood goals, a city might have.

Neighborhoods have stakeholders. Among these neighborhood stakeholders...would be members of city council. Some cities, such as Kansas City, MO, have neighborhood groups. Neighborhood groups often speak to the local goals, and the local objectives, neighborhood members have. These local goals and objectives would be part of the conversation a developer would want to enter into, when he or she is assessing the potential acquisition, of land bank properties.

The Realtor. Whereas the skillsets - and the license - the Realtor has, will enable the developer to acquire, and to sell, the land bank real estate, in this example, those skill sets could be effectively integrated with the neighborhood initiatives, which the local stakeholders have. This is a good integration for the developer to think through, prior to taking on this type of real estate development project.

Building a development team is a recommended step. Securing financing for the development project is key. And it is also one of the first steps a developer should take. How would one get this done?

Obtaining qualified referrals to banks - starting with local banks - qualified referrals to finance companies...and to loan officers who possess a track record of providing financing for similar development projects...is a good idea.

Steps should be taken to add an experienced architect, an engineer, and a lawyer, to the development team. Putting together a marketing strategy for the completed project is a task that could be merged into the responsibilities bestowed upon the developer's Realtor. A lawyer does not list and sell homes. A Realtor does not design home build plans. An architect does not arrange financing. An engineer does not review contracts. So the team-approach, is a good one for the developer to take.

Identifying a Realtor with local market expertise is important. A reputable Realtor with a neighborhood focus could facilitate a good understanding, as per neighborhood home values. As well as the average number of days - Days On The Market (D.O.M.) - it takes for comparable neighborhood homes listed on the MLS, to sell.

"Comps". These would be the sale prices of similar, comparable homes. The Realtor can get these "comps" for the developer, through their MLS. How long it could take a home to sell will enable the developer to gauge his or her anticipated carrying costs for the project. Carrying costs for the real estate acquired should not be overlooked, by the developer. 

Speaking to how the real estate developer will need to garner expertise which reaches beyond the process of acquiring and selling a property, let's look at the City of Philadelphia.

The Philadelphia Redevelopment Authority and Philadelphia Land Bank prioritize transitioning City-owned land into productive use. While doing so in a way which creates jobs within Philadelphia neighborhoods. An emphasis is placed upon providing City-owned land to projects which speak to the provision of affordable housing, in Philadelphia.

The topic of affordable housing includes the provision of affordable home loans. These would be home loans used by the home buyers to finance the acquisition of affordable homes. Need to have access to these loans. Often times, loan programs which require a minimal down payment, or down payment, could be helpful.

Sometimes, a state, or a city, has down payment assistance programs in place, for qualified home buyers. When so, city or state funds could be allocated, towards home buyers' down payment assistance. In this case, the real estate - aka, the development project - could be coupled to the provision of affordable home loans, speaking to, the city's objectives. The developer's proposal submitted to a city could speak to each of the two topics: a) acquiring the city-owned real estate, and, b) the provision of affordable home loans.

The developer's proposal could speak to each topic individually - as addendums, to the developer's proposal. And inclusively as well. Inclusively, in the form of the developer's goals, and his or her vision, for the development project. Overall, articulated for the seller of the properties, in the developer's proposal. 

A real estate practitioner who lacks the necessary resources to become a real estate developer, could shift their focus towards acquiring distressed individual properties that can be rehabbed, and then later sold. These real estate transactions would be classified as "flips". Flipping homes requires one to possess a less expansive skill set. The developer team, does not need to be in place. Hence, there is a much higher number of real estate fix-and-flip participants, than there are, successful real estate developers.