How to Become a Real Estate Developer: Tips to Get Started in Development
When you consider the possible job opportunities available in real estate or finance, few present as many barriers to entry as real estate development.
Que the visions of grandeur – 40 story skyscrapers and expansive urban infill mixed-use development projects.
Or sprawling amenity-filled neighborhoods everyone is clamoring to move into.
Those projects don't pop up overnight – they often take years of planning and coordinating before construction begins. And once you do break ground, it can take years to finish construction.
But real estate development can be highly lucrative. And the fast-paced industry offers developers unique challenges daily that keep the business fresh and exciting.
Suppose you've ever wondered what it would take become a real estate developer, or you're thinking about making the leap. In that case, there are several considerations to keep in mind before getting started.
Marsh & Partners is here to shorten your learning curve, so we’ll cover all that and more in this article.
What is a real estate developer and what do they do?
Real estate developers are responsible for coordinating and building or renovating commercial and residential real estate. They’ll purchase land or partner with landowners, create a plan for the raw land or property renovation, and guide the project through development and construction.
Overseeing a development project is not dissimilar to a traditional project manager's work. But of course, in the context of real estate and with some added complexities.
And because developers take on the role of project manager, a lot of the actual work to complete a project is done by 3rd parties and outside consultants – civil engineers, general and sub-contractors, architects, environmental engineers, etc. So, to leverage the maximum capabilities out of those consultants, developers need to be expert relationship and team builders.
There is no formal training required for real estate developers, but many transition into the business from other fields in real estate – brokerage, acquisitions and investment, engineering, or contracting and construction.
The skills required to complete a development project cross over many traditional real estate functions. On a daily basis, a real estate developer could have their hands in any of the following fields:
- Land acquisition
- Site selection
- Land planning
- Feasibility studies
- Building design
- Real estate development budgets
- Market entry studies
- Financial modeling and analysis
- Land entitlement
- Construction and project management
- Interpersonal skills
- Building cohesive teams
- Structuring land contracts
This isn't an exhaustive list, but it's a good place to start if you're interested in becoming a real estate developer. Keep in mind these skills take years to develop and are often cultivated through hands-on experience.
Find a mentor
Real estate is a team sport – no one who has seen any success in the real estate industry, especially in property development, has done it alone.
You may be a voracious learner – you spend hours reading articles and watching videos online about the real estate development process. That's all great and a vital ingredient of the journey many burgeoning property developers make.
But just because you have the technical knowledge doesn’t mean you have the expertise to shepherd a project from start to finish.
Remember, you don’t know what you don’t know. And many of the unique skills developers leverage to complete a project are learned through previous failures.
A development mentor can help to speed up your learning curve. But more importantly, they'll hopefully help you avoid losing money on your first couple of projects.
Every deal is going to present a unique set of challenges. And you’ll be faced with several critical decision points throughout each project.
Navigating those decision points successfully is often the difference between wealth and expense - a mentor can help guide you through those decisions based on their industry experience.
Build a network
Building a network sounds self-explanatory, but it’s critical if you want to break into the real estate development industry.
As a developer, you’re going to rely on the expertise and guidance of 3rd party consultants throughout the project's entirety. And your network directly relates to the speed and quality with which those consultants deliver their services.
Your network should revolve around folks that serve the critical functions of a development project, in addition to consultants that can problem solve the common friction points you might find during a deal.
Typically, you’ll want a close working relationship with a general contractor, civil engineer, designer & architect, land-use attorney, lender, environmental engineer, and surveyor.
The right network of professionals will arm you with the complementary skills needed to handle the inevitable hiccups you’ll experience during a project – challenges ranging from land-use and zoning restrictions to wetlands mitigation and stormwater regulations.
Create a development plan
In an industry flush with opportunities, the question many overzealous budding developers ask is, “where do I start?”
It’s an important question and has implications for how you approach breaking into the industry.
First and most important is you'll want to establish a geographic focus for your projects, at least initially. Every municipality has its quirks, and every market has its own economic fundamentals. A geographic focus will help reduce the need to navigate multiple sets of development regulations early in your career.
You’ll also want to determine what you want to build. Starting small may be helpful from a risk mitigation and capital raising standpoint. But do you prefer a particular product type – multifamily vs. retail vs. single-family houses, for instance?
As you’re solidifying your development plan, spend some time reflecting on the following areas to help focus your energy.
Set realistic goals
It’s easy to get overwhelmed when you consider the never-ending list of tasks required to navigate a project from start to finish.
Not only do you need to get caught up to speed on the real estate development process, but you'll need to find some land at a reasonable price, acquire the financing, entitle the property, and construct the property through eventual disposition.
Establish realistic and quantifiable benchmarks to keep yourself on track with your goals.
For instance, early in my development career, I used the following metrics:
- Reach out to 10 landowners directly about purchasing their land per week
- Network with 3 industry professionals and consultants per week
- Spend 5 hours per week on diligent self-study
- Underwrite 1 new development project per week
Depending on your employment situation or personal obligations, these milestones may or may not be reflective of the time you have to commit to launching your career as a real estate developer.
Set a couple of goals that make sense for you and attack them vigorously.
Understand the local market
The local property market will largely dictate the feasibility of certain types of development projects.
Consider these few questions about your target market:
- Does your target market have a positive net in-migration of new residents?
- Are businesses moving to the area, and is it business-friendly?
- Where is the growth headed?
- Are rental rates for certain types of properties increasing or decreasing?
- What’s driving those rate changes?
- What types of projects are the planning department and city council approving vs. not approving?
They're important issues to quantify and should help inform your decision about what types of projects will likely be profitable. The more data you can collect to shape your development plan, the more likely you'll experience early success.
Find multiple feasible sites and underwrite the projects
Despite the real estate development process being frustratingly slow at times, the speed at which quality land transacts can shock new developers.
Securing funding for a project can take months, at which point the available site you found may already be under contract.
It's important to identify 4-5 feasible properties and underwrite projects for each. You’ll need to be thorough in your due diligence for each site, identifying possible “deal breakers” like zoning limitations, access to utilities, and environmental considerations.
Build a separate development proforma for each project, including everything from estimating sitework costs and forecasting a project’s hard costs vs. soft costs to projecting the project’s IRR and cash on cash return through the exit.
Not only will you be better prepared for the possibility that you need to chase a backup opportunity, but each repetition will also build your site selection and financial modeling muscles.
Create the development plan
Once you have a firm grasp of the local market and you’ve identified a couple of opportunities you deem profitable, it’s time to aggregate all that data into a presentable development plan.
Depending on the type of funding you hope to acquire for the project, a formal offering memorandum may be necessary.
The development plan will outline exactly how you plan to accomplish the project, including development, construction, and payback timelines, and overlay your financial projections on top of key market data.
Drafting a quick pitch summarizing the project’s key facts and financial data goes a long way in displaying your grasp of the development plan and aptitude for completing a project.
Development financing for new developers
Perhaps the most challenging roadblock new real estate developers face is securing development financing.
The majority of banks won't lend to first-time developers, and most of us don’t have millions of dollars burning a hole in our pocket to bankroll a project.
And just because you have a vision for a project doesn’t mean a lender or even a private investor will be interested.
But fear not – it’s a situation every new real estate developer faces.
Consider the following suggestions to overcome the challenge of acquiring development financing as you begin in real estate development.
Develop a track record
This is a bit of a "chicken and the egg" situation – how do you acquire a track record for your first deal if you don't have any projects under your belt.
Before you can graduate to larger projects, it's crucial to establish a track record of success to offer some credibility.
Property flips and rehab projects are an opportunity for relatively short money to display success in developing and executing a plan.
Experience as an analyst or associate at a more prominent real estate development firm may also help establish some industry reliability.
Lenders and investors need to make their own risk assessment before they agree to contribute capital towards a project. They’ll be more willing to invest if you have a history of success in related projects.
Find a development partner
A development partner with experience could be a great way to secure development financing for your first deal.
If you create a compelling plan, a partner may be willing to sponsor the deal, giving you the funding credibility needed to finance a project.
If you already have some personal funds earmarked for a project, you could co-sponsor the project with another small-scale developer. Each developer would be responsible for bringing a portion of the necessary funds to co-finance the deal.
So what should you start learning?
Understanding the basics of real estate development is a good place to start. Before you dive into the nuances of specific deals, you’ll want to have a firm grasp of the real estate development process as a whole.
Study the key players of a complete cycle real estate development deal and how the various 3rd parties and consultants can impact a project, both positively and negatively.
Working knowledge of local real estate regulations will also be helpful. Most municipalities have a prescribed set of development guidelines that regulate how and what you can develop. The material is often dense and dry but offers insight into what you'll be subject to if you proceed with a project.
A municipality's future land-use plan is a good resource to better understand the city’s vision for future real estate development.
In terms of technical knowledge, there are numerous quality online classes that you can take to sharpen specific critical development skills.
I personally enjoy Justin Kivel’s real estate development modeling master class for new developers interested in strengthening their financial modeling skills.
YouTube is also an excellent resource for free content on various development topics. For example, we have a video series called “CRE Development Mistakes” aimed at helping small business owners, investors, and developers avoid the big dollar missteps that often derail projects.
If you’re interested, you can also learn more about Marsh & Partners’ real estate consulting services. We offer real estate advisory expertise for folks eager to break into the industry.
You can book some time on our calendar if you want to brainstorm further about how to begin in real estate development.