How would I get paid to develop land?

Question

I am a Real Estate Agent, and I would like to start developing land in NY. I would like to get a group of investors together, but my question is how would I get paid while the project is under development? I know that in the end (if successful), I would receive a fair compensation, but how would I structure it as to get paid like a salary? I would like to go at this full time, but I don't know if I can sacrifice not being paid for such a long period. Any suggestions? Your help would be very appreciative...thanks in advance.

Jon Holdman · Answer

Sounds like you want to have your cake and eat it too.  Seems like you want to get paid a salary and also have an ownership stake in the deal, too.  Would you be putting cash into this deal.

You might look into trying to get a paid position with a developer or development company.  That business is VERY slow right now, but I do see a very few projects starting up again.  Hopefully the one I have an investment in will get kicked off.  If you've never actually done it, you need to do something like this anyway.  This is a complex business.

If you mean the actual construction part of the business, that's really a different business from development.  Look for a job with a builder.  Again, that business is slow right now, though.

If you really want to run development projects, you need a bunch of skills.  You need to be able to determine demand.  You need to locate land that can be developed to meet that demand.  You need to get approval from the governments involved for your plans (often one of the most difficult and time consuming steps.)  You need to be sure the local infrastructure supports your project.  Building roads, water lines, sewer, and storm drainage is often required for a big project.  You have to line up investors.  This would probably some sort of private placement, so you need to understand and follow securities laws.  You need to find and negotiate with builders that will actually build your project or sections.  You need to sell or rent the properties you construct.

More fundamentally, are you an employee (someone who collects a paycheck) or an owner (some who gets paid when the business succeeds).  Tough to be an owner of a non-cash flowing business, like a development project before you get to the payday, and yet collect a paycheck.

Joel Owens · Answer

You need to go work for a developer first.

That's how I learned that business.I wasn't an employee but a friend had a old coin laundry built in the 60's and a developer was approaching them to sell for redevelopment.

My friend brought me in (as an agent) to help negotiate with the developer.The developer then brought me on to help with assembling the other 20 parcels on 25 acres for a new mixed-use retail development as they were impressed with my negotiating.

Over the next 2 to 3 years a learned a lot about development.I was mainly on the front end  doing land assemblage however I was included in many meetings and learned a lot.

How long the development takes is about funding,structure,politics,timing,and size.The bigger the size the more it impacts  an area and the more regulations and controls they put on it.

The developer can typically partner with the land owner or set up an equity share structure on the back end.The developer typically takes small consulting fees during various stages of putting the land together,meetings,first phase of construction,etc. until completion.

They make the most on the back end when they have performed.A project can have more than one developer or a single company it just varies.

I haven't done any land development in years.Most developers are taking cash and buying reposition plays in good areas for less than build cost where they re-skim the outside.

New development is still ongoing but it's in really great areas that are a safe play.

From what you have stated you are not ready to take on this task.The money you think you will be getting will pale in comparison to the lawsuits that hit you when you screw up and lose people's money from inexperience.Don't think a disclaimer will protect you as they will come after you anyways.

Why don't you list the land and market it to developers and take your commission that way and let the developer take the risk?? If you really love development then go work for a professional company to learn.You do not get all the commission that way and they usually pay a salary plus a small part of the commission you make.

Bryan Hancock · Answer

I see development deals frequently where the developer bakes in a fee and some split on the back as well.  This is an exercise in sales because you have to sell this to your investors up front.  If you lack experience adding value in this capacity this sale is going to be VERY hard.  However, people have access to different resources so this may not be the case for you.

What you are talking about doing is big league ball.  Developers get paid well for a reason.  There are literally thousands of land mines you can step on during a development.  You should probably devote some energy to learning the capital raise business with real estate syndications and take some roles where you work for other developers to see how they do things.

J Scott · Answer

You can always structure the deal such that you are taking payments throughout the project for salary.

That said, it would likely make the deal less attractive to investors, as you are then taking essentially no risk in the deal -- you're putting in no money and you're taking a salary for your work.  You could walk away at any point and not be financially hurt.

Karen Margrave · Answer

Brian Warner Let's get down to some of the details. On the land you are looking at, what is it listed for? How much is the commission? Does it have any improvements done yet? (curb, gutter, sidewalk, utilities to property, etc.)  What's the area like, is there demand for such a project? How big of a building will the site support? Do you know what exactly will be required to build the project you're considering? What will it cost to get the site to the point of construction of a building, and what will it cost for constructing the building?  How much parking is required for the use you want to do? What would the completed building rent for? Would you be developing the land and selling to a builder, or would you be building out the entire project? Once it's built are you going to lease it out or sell it? Have you talked to any potential tenants? How would you market the property? What do similar properties sell for? Have any sold recently? What makes you think it's a good project?

What you want to do isn't impossible, it just depends on the details of the deal, and how much of the work you can actually do, and the value that it has.  Are you able to do all the work to get the property ready to start construction? Acting as the project manager, would you oversee getting all the permits, plans, act as the general, etc.

In the end, it all comes down to the numbers. You have to get all the information first, and then see if it makes sense. Right now, you have a concept. Prove that it works! If it does, you can put it together.

I am not trying to overwhelm you, just throwing out some of the stuff you need to consider.

Mark Updegraff · Answer

This advice is spot on.  As a new investor / aspiring developer learning the ropes during this excellent time to be buying RE, I can tell you for certain it is FAR cheaper to re-skin a quality property than it is to build it.  Re-development is a smart & safe place to start.  Development is possible, but I would do it in small increments.  Don't jump into anything you can't personally finance yourself given worst case scenario.  If you find investors, great!  If not, pay for it and do it yourself.  Now you have a track record.

Jesse Tsai · Answer

There is a lot more to it than how it looks on the surface, but many developers create syndicates.

In a nutshell:

1. Developer finds deal
2. Developer tell his investors about the deal
3. Investors fund the deal. (you may get paid here, if you make yourself the broker, and take the commission)
4. Developer develops land
5. Land begins earning money if/when improvements get occupied
6. Developer and investors split the cashflow from the deal. (You get paid)
7. Developer may sell the development and split the proceeds with investors.  (You get paid)

Joel Owens · Answer

Hi Brian,

Because of distressed assets the owner of the land needs to do an analysis.

In their immediate area what apartment buildings  and or restaurants are already available?? Is their something about this raw piece of land that makes it the best piece in town??

Is that even the lands highest and best use??The developers on larger projects can make hundreds of thousands to millions of dollars profit but they also spend sometimes up to 5 to ten years to do a project and get it going.

What you are talking about is  a smaller type project.

You work backwards on the cost.If I can reposition a current building much cheaper than building from scratch to invest in that area then that is what I am going to do.

Is the seller of the land unrealistic in what they want for it?? Many sellers saw high prices of 2004-2007. Back then there was no distress and growth was moving outward at a rapid pace and rents were increasing from demand. A developer could set up an LLC non-recourse at 90% ltv and get secondary debt to have little or next to nothing going in.By the time the project was ready to build out and completed in 2 to 3 years projections were for high rents.

The market bottomed out and when finished rents were much lower and couldn't pay the debt service for the high cost of construction and what the developer paid for the land.So the developer on non-recourse just handed back to the lender.

Now lenders want your first born to find a development deal.A developer going in if they have other trophy assets on the line if they default they will pay a low price for the land to be safe in their numbers and cost to construct.

Jon Holdman · Answer

It doesn't work like this.  The guy who puts the project together and rounds up the investors ALWAYS has a significant stake in the project.  Often they start by BUYING the land involved.  You make it sound like "putting together a proposal" is a quick and easy job.  It is certainly not.  It is, very often, much more work than the actual construction.  Assessing the market, finding the land, getting all the approvals (which can be INCREDIBLY difficult), and then rounding up the investors can be a multi-year project.  And it requires a BUNCH of money.  And there's nobody who's going to pay you at that point.  There's nobody for this "project manage" to be an employee of.  So the guy putting a deal like this together has to have some way to pay their living expenses and to fund the up front costs.

The "Urban Land Institute" has a bunch of books on this topic.   They're pricey (about $100 each), but they have a wealth of knowledge.

Sorry, but it sounds like you're just wanting to get started and have zero experience in this.  Your timing is really bad, unfortunately.

Brian Warner · Answer

@joel owens - I definitely want to work for a developer for the experience...just hard to find any that are hiring in NYC/Long Island area. As far as the listings I see, they are owned by other people. If I got a land listing of my own, your idea about marketing it to developers would make sense.

How would I get paid to develop land?

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