How To Become A Real Estate Developer
Starting a property development company is a fast route to achieving great wealth and respect.
Becoming a developer is all about finding and completing your first successful project. But how do
you find and build your first project with no experience and without being wealthy first?
Step 1: Understand "highest and best use"
First, you need to understand the concept of "highest and best use". The highest and best use for a
property is the use that generates the most income for the owner while being physically possible and
legally permitted. As a developer, you are looking for properties that are not at their highest and best
use. Bringing them there is how you will make your money.
Step 2: Select and study your target area
Start by selecting one area to focus on. For beginning developers, this is usually the area where they
live. However, if you live in an area where real estate values are not going up, you may need to
choose somewhere more dynamic. The important thing is to focus. Your knowledge of a particular
area is one of the key advantages you have as a beginning developer. You can't develop this
expertise if you divide your time.
Once you have selected your area, learn the locations of businesses, schools, parks and houses
there. Notice how properties fit together, then look for properties that "stick out". An example would
be a small house on a large lot on a street with condominium buildings--there is probably an
opportunity to replace the house with with a condo project.
Step 3: Get control of your target property
Once you have found a property that "sticks out", you need to control it. Fortunately, you don't need to
have much money to control property. Here's what to do: Find a real estate agent in your area. Ask
for his help in writing an offer for the property. Make sure to put in the contract an escrow period of at
least 60 days. Once you have the owner's signature on the sale contract, you control the deal.
Step 4: Create your team
You need help from experts to develop your project. Luckily for you, many of them are willing to work
for free in the beginning. The most important team member is your architect. To find one, ask real
estate agents for recommendations, then speak to anyone they recommend. Explain what you are
trying to build, ask if it is possible, then listen carefully. The architects will be willing to tell you if the
project is possible and what steps you need to take to make it happen. Select the architect you feel
comfortable with and ask him to help you assemble financial projections for the project. These include
the costs of buying the land, getting the necessary permits and plans, paying a contractor, and either
selling or leasing the project once it's done.
Step 5: Find the money
With the property under control, an architect on the team, and solid financial projections, you are
ready to raise money. Most of the money you need will be construction loans from banks. However,
you will also need cash, sometimes called equity. This can come from you or from investors. You will
need to bring equity totaling 10 to 20% of the cost of the project in order to convince banks to loan
you the rest. It is very important that you speak with a good lawyer before soliciting anyone to invest
in your project. Your lawyer will explain the relevant laws and create the legal documents you need.
When you do speak to investors and banks, keep this in mind: It is your job to project an aura of
confidence. Your ability to sell your project to the people with the money will determine if your project
will happen or not.
Remember: The completing your first project will be hard. You will sometimes feel like quitting. But
great rewards do not go to quitters; they go to people who dream big dreams and have the courage to
work hard to make them come true.