This article from gowercrowd.com written by Adam Gower Ph.D. discusses the guide to get started in real estate development.
A Morgan Stanley survey revealed that 77% of US millionaire investors own real estate while 35% own a share of a Real Estate Investment Trust (REIT). Compared to other alternative assets, real estate is by far the category with the highest level of investment.
Real estate investors do sometimes buy turnkey properties, but more often they develop properties. The appeal of real estate development is the potential for higher operating profits during ownership and larger capital gains upon sale.
It’s risky, but also rewarding when successful. Many of these investors work with real estate development companies to reach their expected ROI.
What is Real Estate Development?
“Real estate development is the process of creating value by making tangible improvements to real property.” –Ben Bulloch & John Sullivan
When you’re developing real estate, you’re either building new structures, modifying existing ones, or generally improving any piece of real estate to increase its value. Real estate includes land and temporary or permanent structures occupying that land.
What Requirements Are There to Become a Developer?
The process of becoming a developer varies from state to state, but the fundamental necessities remain the same.
As a real estate developer, you will wear many hats- so a broad knowledge and experience base is vital. In most states, you do not need to acquire a specific degree or professional certification to become a developer, but having a degree in related fields will help immensely in your journey. These include, but are not limited to, civil engineering, urban planning, finance, business management, or a business real estate degree. Some schools, like The University of Southern California, for example, offer masters in real estate development that can also stand you in good stead to get started.
As important, if not more so, as your formal education is your “on the ground” experience in the field. A background working in real estate, as an agent, broker, analyst, etc., will prepare you for being a developer- but other professional fields have their value as well. Careers in finance, sales, construction, and many other related areas can all be relevant to success as a developer.
Many of my students have started working as commercial real estate brokers where they learn the ins and outs of both buyer and seller side dynamics. From there they migrate to assisting sponsors in raising either debt or equity for deals. This can be one of the best ways to get educated in real estate development because to do that well, you must understand contracts and proformas like the back of your hand – and, combined, these two form the DNA of any development business.
Your social capital, aka your professional and personal connections, will also have an outsized impact on your prowess as a developer. Simply put, the more people you know, and have good relationships with in a market, the more effective you will be. This includes people like brokers, who can help you find deals, title agents to help you through transactions, attorneys to assist with development-related legal matters, and anyone else who can contribute to making your process more efficient and effective.
How to Get into Real Estate Development?
There is a fairly straightforward process for getting started with real estate development:
Get Some Basic Knowledge
You don’t want to enter any kind of investment without understanding the basics of the market. Learn the ins and outs of real estate as best you can before trying to invest in it. No degree necessary, although it doesn’t take long to get a real estate license for a thorough cover of the topic. If you’ve worked in real estate in any capacity, you probably already have basic understanding.
Build a Team
Unless you plan to do everything yourself, find team members who can make it happen. A trustworthy team includes other developers, legal staff, architects, engineers, finishers, day workers, and more. Some teams can be built as you go, or you can work alongside an established developer to start off.
Find a Property or Project
Find a project that meets your investment criteria and makes sense for your team’s capabilities. To start out, you can join into an existing project for more experience or seek out your own property.
You do need capital to purchase the property that you’re going to develop, though you don’t have to pay for it on your own. Working with investors gives you more opportunities for commercial properties, although you’re likely to need an experienced partner to earn investor trust.
Congratulations! You’ve gotten into real estate development! Unfortunately, getting in is the easy part. Making it a worthwhile investment is where the challenge comes. Here’s more information about getting into real estate development.
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