Property developers always make headlines like the ones who make new homeowners purchase homes. They demolish homes and make big profits by renovating and building as many new homes as possible.
Becoming a real estate developer may seem like easy money, but you need to familiarize yourself with finance arrangements, construction, and your target market. Here are the things that you need to know before you become a real estate developer.
Understand property development
You should have a full understanding of the job and responsibilities of a real estate developer before you start this type of business. You will design properties, consult, gain a commission, and administer construction on the property you are going to develop.
The basic principle of property development is improving a piece of property before you sell it to a potential homeowner. It usually includes building a new house or adding amenities to a certain piece of property for sale or rent. It can also improve dividing the site into smaller blocks, depending on the council approval of buildings.
You should also know who to keep in contact with. Depending on the complexity of your project, you will need to be in contact with the following people:
- Real estate agents to help you in looking for clients
- Finance experts to help you with costing, pricing, and commissions
- Lawyers to help you with contracts
- Landscape architects
- Building contractors
- Construction managers
- Property strategist to help you with the research and purchase of the property you are going to develop
Also, note that real estate developers usually have the biggest risk in real estate projects, that’s why they have the biggest reward. They have a bigger scope in terms of real estate projects. Thus, real estate developers can earn up to millions of dollars if they have big-ticket projects.
Know your market
You should know and understand the current market to be successful in the real estate development business. Consider these factors: economy of the community where the property is, the type of people living in the community, and the amount of money that people are willing to pay for a property.
Getting adequate research and considering the factors mentioned above will be helpful for your real estate development business. Understanding the market will make a difference, especially in choosing to buy from a high-growth area or a stagnant location.
Become an area expert
It is important to choose an area of expertise before you start looking for a property to develop. By doing such, you will gain focus. You will get familiar with the council and zoning laws of the location you are planning to be an expert in. You will also learn what the people in the location want for a property.
If you found an appropriate site, then check for the following:
- Zoning rules, council laws, and subdivision regulations
- Check if the location is heritage listed. If the site is, then look for another location
- Know about road widening, whether it will affect the property or not
- Proposed zoning, development, and planning policies that might affect the site
If you are not focused on one area, then you will easily get distracted by every opportunity that comes along. You will end up wasting your time researching on a property you are not familiar with. Thus, having a focus or a specialty location will help you in your real estate development business.
Know cost and profitability
Knowing the cost and profitability of a project is an essential aspect to know before you invest in a property. Before you start a development project, establish how much you can borrow and spend on a certain project. Also, you should know how you will manage all the associated expenses. By doing so, you will know your financial limits. Accurately run a property cost breakdown. It is crucial to always check all the numbers.
Make sure that your profit margin is on track. Do not rush into any deal that you think will give you a big profit. The end product should pay bigger than how much you spent in developing the property. If this is not the case, then you should walk away from such a project.
- Pre-purchase stage – investigate the property based on your financial capability during the pre-purchase stage. During this time, you should be consulting some real estate experts.
- Negotiating and purchasing – at this stage, the land is under negotiation to allow the developer to yield profit. Here, you will think of how much you are willing to pay and how much profit you will earn. Buy new apartments to develop or a new commercial property.
- Development approval – during this stage, the architect or the project engineer will draw a plan before getting approval from the town council. You might be required to get the services of a land surveyor.
- Construction – once the building plans are approved by the town council and the contracts are drawn, you can start with the construction. After the construction is done, you can now sell the property to the market.
A real estate development business is hard at first, but it does not mean that it is impossible to succeed in this type of business. Start small and learn from real estate developers. Once you understand the process, people will want to work with you in the future.