What's the process to be an real estate developer?

Question

I have investors from overseas would like to invest with me in new constructions. My thought is to buy land, build house, and sell it within a year. The concept is easy, however since I never had anything similar to this done by myself, i am not sure where shall i start. My plan is that obtain a  small land that can build less than 5 houses at the beginning. I know I prob will need some construction loan, some paperwork, such as permit to build the houses, legal paper between my investors and I. I am also looking for connecting with experts who has theexperience. Most important, how much money do I need? Any suggestion is appreciated!

Rodolfo Canon · Answer

Ashley,

I have been in the Denver real estate market for 12-years. During that time I have sold residences, did 70 fix and flips, sold raw land to housing developers, and built and sold $67 million in townhomes over the last three years. Give me a call. I'll be happy to discuss your options with you. Canon Property Group

Ashley Zhang · Answer

Hi everyone, thank you so much for the reply! I am running into a funding hurdle now. But hopefully I will have it figured out soon.

Chris Lopez · Answer

@Ashley Zhang - take up @Rodolfo Canon on his offer. I've walked a couple of his development projects. He is the real deal and knows what he is doing.

Jacqueline Peterson · Answer

Ashley,

Kevin is correct in stating to NOT buy land unless you know what you can or cannot build on it. It is best to obtain an Option Agreement on the land and NOT a Purchase and Sell Agreement. An Option allows you an opportunity to do your due diligence which includes having a Market Analysis conducted  in order to find out the highest and best land use, which I mentioned previously. Once the Market Analysis or BPO is completed you will be able to determine if the project is feasible-  and if it is, then you and your Project team can complete the Predevelopment Phase that will include architectural drawings, site plan, elevations, construction estimates, soils and environmental testing, just to  list a few.

Kevin Martin · Answer

don't buy any land unless you know what you can or cannot build on it. That means going to the city(or a pressional) and asking what can be developed. If you go to the city make sure you get whatever they told you in writing. Next make sure you have Utilites readily available and you don't have to spend crazy money on Utilites just to get them to your property.  Planning and Zoning should be one of the first things you do.

Once everything checks out get your funding in order, hire your design professionals, hire your contractors, then sell it as soon as possible.

Jacqueline Peterson · Answer

Hi Ashley,

It is great that you have investors that are willing to invest in your project(s)! Sometimes it can be difficult to obtain the right type of  financing- whether it be equity or debt.

Since it appears that you have already determined that you want to build less than 5 houses, are you looking to do traditional single family houses or townhomes? If you haven't asked already, you need to know how much your investors are willing to invest and what ROI (Return on Investment) they want.

You also need to ask yourself the following questions:  Do you have money to invest ("skin in the game")? What is your borrowing capacity? Are you willing to do a lot of research, and so much more? If you can answer undoubtedly with a “yes”, this is a good start.

It is difficult to give you an answer as to how much money you will need because you have to know how much the land will cost and you will need to know what the soft and hard (construction) costs will be. Soft costs can include, but not limited to, professional fees, loan interest costs, city development fees, investor ROI, developer fee, insurance, and realtor fees ( if applicable).

The other remaining things, and not all inclusive, that need to be looked into are, which would be considered as 'FACT FINDING' (before you venture into a real estate development project):

(1) What type of incentives does your city offer to developers? What is your city's Housing and Economic Development Plan? (Most developers want to find out upfront how their project can save money, such as buying land at below-market cost, low-interest loans, property abatements, and other incentives that a city can provide in certain neighborhoods.)

(2) Which site locations interest you and why? (It is very important to know what the land's surrounding area offers, such as nearby grocery stores, parks, retail, schools, public transportation/light rail, and employment centers because it will be easier to attract potential homebuyers or renters.)

(3) FInd out who your City Councilperson or Alderperson is and what has she or he done to help real estate developers. Please keep in mind, that City Councilpersons or Alderpersons oversee different jurisdictions. So, if you live in one particular area but the land that you are interested in is in a different neighborhood, then the City Councilperson or Alderperson may be different.

(4) Who are the best Market Research Firms that can provide a Market Analysis (highest and best land use)? (Most lenders require a Market Analysis or a BPO (Broker Price Opinion) before considering a construction loan, especially since you are wanting to build 5 houses. The lender would want to know if the market in a particular area is better suited for rental or for-sale units and possibly affordable housing.)

(5) Which CPA firms and transaction Law Firms have an excellent reputation in real estate development?  It is vitally important to have these 2 different types of professionals on your team upfront.

(6) And, without question, you need a strong Project team. Do research and gather pertinent information on which architectural, general contractor, civil engineering, electrical engineering firms have several years of experience in the type of development that you want to pursue. I will say, that since you want to start off with a small project, you may only need an architect, general contractor, and civil engineer. A Civil Engineer can determine what type of utilities currently exist on the land and what will be needed for the actual project.

It is my hope that the information that I have provided has been helpful or at the very least insightful. Much success to you!

Eric Robinson · Answer

Hi Ashely,

I completed my first development deal last year on  a single family home.  Here are the basic step that I did.  First I found a source of financing that would loan on speculative home.  Then we found a piece of land in a  neighborhood that had the product type and comps we were looking for.  We submitted the permit and zoning applications to the county and closed on the loan about the same time.  We then began construction and completed the build in about 5 months.  The home was sold about 45 days after completion.  Being the first time there were a few unknowns but having a construction back ground helped.  We are now rolling the proceeds into our next project with the same bank and contractors.

As far as how much money you will need will depend on the product you plan on building and if or what type of financing you are looking at.  Our lender required us to provide 20% equity which is very reasonable considering.

What's the process to be an real estate developer?

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