A GUIDE TO REAL ESTATE DEVELOPMENT
Often, the everyday real estate investor will have a portfolio of turnkey properties. However, there is another, more primary role in the world of real estate, and that is development.
What is real estate development?
Real estate development is the improvement and construction of land to create value. Real estate development can be a very lucrative investment, but with that comes risk. Development has been known to stimulate economic growth and even re-invent cities.
What do you need to become a developer?
Although there is no specific license or degree, becoming a real estate developer can take years of experience. It is imperative that you learn the basics of the market you are interested in developing. Working hands-on in the real estate industry can provide you with the skills and relationships you will need to become a real estate developer.
This stage focuses on the due diligence process. There are many unknowns in this process, so you might find that this part of the development project can take several months or even years. Due to the level of risk at this stage, pre-development is often funded by a project sponsor or equity investor. This stage includes:
- Market analysis
- Land acquisition
- Building plans
- Arranging to finance
- Applying for and obtaining construction permits
The middle stage is where you get to see all your plans come to fruition. The construction and improvement stage can take anywhere from many months to several years and entails preparing the site, and active management of progress. Some projects can have multiple phases which can extend and complicate the process.
Throughout construction, project sponsors and various stakeholders should be kept up to date on the happenings of the plan, and the plan should be always updated and accessible.
Your project is now complete, and you need to decide what your next steps will be. Whether you intend on selling the property or obtaining tenants, you will have to have a strategy in place. It is important to ensure all documentation is complete and all construction contracts have been fulfilled. If you are holding the building you will need to hire property management to acquire and maintain tenants.
You don’t have to do it alone
As this is simply a general overview, real estate development can be a lengthy but lucrative process. When done alone, there is much higher risk and a lot of footwork, however, there are alternatives to investing in development. Private REITs can allow you to gain access to investing in development projects without the hassle of going through all these steps.