To new investors, becoming a real estate developer often seems like an impossible goal. This doesn’t have to be the case. Many different paths exist to establish yourself as a developer, and gaining experience in any of these can set you up for success. As such, we’ll use this article to explain how to become a real estate developer.
Specifically, we’ll cover the following topics:
- What is a Real Estate Developer?
- Common Real Estate Developer Backgrounds
- How to Become a Real Estate Developer
- Final Thoughts
What is a Real Estate Developer?
Prior to discussing how to become a developer, we need to first define real estate development.
Real estate development is the business process of improving either raw land or existing structures. Developers use these real property improvements to increase the value of that property. Depending on the particular deal, real estate developers can focus on anything from ground-up construction to historic renovation to value-add improvements.
Regardless of strategy, real estate developers focus primarily on the financials behind a deal. A successful developer will underwrite a potential deal to ensure that the total future revenues justify the total development costs. If the return on investment doesn’t make sense, the developer will either alter the deal’s plans or not pursue it at all.
Required “Soft Skills”
As we’ll outline below, real estate developers come from a variety of backgrounds. However, all developers need the following soft skills to successfully execute a deal.
Organization. Real estate developers have to balance countless tasks, deadlines, and team members. From architectural plans to financing to municipal zoning, a ton of moving pieces exist. Accordingly, successful developers have outstanding organizational skills. Without solid organization, a deal will inevitably collapse.
Project management skills. Project management skills and organization go hand in hand. Using a sports analogy, project management is somewhat like being a football quarterback. Can you lead a variety of people – with different skill sets and priorities – in pursuit of a common goal? Successful developers understand the major milestones, detailed requirements, and sequencing of a given project, and they can efficiently execute the related plan.
Initiative. Real estate development is not easy. No matter how much experience you have, each project will inevitably create unexpected challenges. Without a deep-rooted sense of initiative, would-be developers will likely be dissuaded from facing – and overcoming – these challenges.
Common Real Estate Developer Backgrounds
A common commercial real estate saying states that “financing is king.” If you can’t fund a project, you can’t execute it – no matter how good of a plan you have. As a result, many developers come from a finance background, either on the lending or deal-making side of the industry. These fields provide both experiences and relationships critical to financing commercial real estate projects, making the jump into development a logical one.
Accounting serves as “the language of business.” Any commercial real estate deal requires in-depth accounting support, both in the underwriting/development and stabilized operations phases. Accountants inherently understand important development tasks like creating pro formas and projected financial statements, which lenders and investors will require before financing a deal. As such, many accountants in the real estate world eventually gain the experience necessary to transition into leading their own developments.
While construction and development differ, they are intimately related. Developers figure out how to pay for deals, and general contractors (G/Cs) actually permit and build the projects. This overlap means many G/Cs also act as real estate developers. During construction projects, these professionals gain in-depth knowledge of the entire development process, leading many to seek higher returns developing their own projects.
Civil Engineering and Architecture
These design professionals play crucial roles in real estate developments. Civil engineers prepare the land to support a project, while architects design the actual buildings. Furthemore, both professionals charge significant fees that can quickly blow through a developer’s soft cost budget. As such, it’s not uncommon to see engineers or architects become developers, as they A) understand key aspects of the development process, and B) can cut costs by completing design work internally.
Real Estate Law
You can’t close a commercial real estate deal without attorneys. On the financing side, real estate attorneys draft operating agreements necessary to bring investors into a deal. With due diligence, these attorneys take point on title research, ensuring a property doesn’t have any outstanding liens. At closing, they organize the actual transaction settlement, facilitating the transfer of ownership from one party to another. Completing these development-related tasks provides lawyers keen insight, leading many to jump into their own development deals.
How to Become a Real Estate Developer
Step 0: Read!
Due to the vast body of knowledge real estate development requires, becoming one should start with self-study. Soak up as many articles, blog posts, and books about development and its related specialties that you can find. This reading will have two major impacts. First, it will help you gain an appreciation for what you don’t know, thereby focusing future studies. Second, by reading about the mistakes other people make, you can avoid making those same mistakes yourself.
Step 1: Find a Job in the Real Estate World
While you can jump directly into your own development, it probably won’t go smoothly – these deals just require far too much experience and knowledge. Instead, many developers begin with jobs in one of the above fields. Even an entry-level position in the real estate industry can serve as a springboard to becoming a developer. If you look at these jobs as getting paid to gain experience and soak up as much knowledge as you can, you can leverage a job into your own long-term development plans.
Step 2: Find an Established Developer to be Your Mentor
In addition to experience in a development-related job, essentially all successful real estate developers can point to a mentor who guided them on their development journeys. The risks and complexities of a development deal can seem overwhelming. With a mentor to guide you through your first few deals, you gain a key backstop for bouncing ideas off and sanity checking your plans.
Depending on the job you find (Step 1), a mentor could be your boss. Or, you can seek out a relationship with one of the established developers you work with in your day job.
Step 3: Enter a Development Deal as a Limited Partner
While not necessary, we highly recommend joining your first deal as a limited partner, with the general partner taking point on the development. Especially if the general partner happens to be the mentor you identified above, this set-up proves particularly advantageous. As a limited partner, you have “skin in the game,” contributing capital to a deal. But, you can also use this role as an opportunity to shadow an established developer through the entire deal, gaining experience while limiting your risk.
Step 4: Plan and Execute Your Own Development Deal
With a few deals as a limited partner under your belt, you’ve likely gained the experience necessary to take point on your own deal. As the lead developer, you will have to leverage all of your prior experiences and hard-earned knowledge to successfully take a project from concept to stabilized property – and you’ll still likely have questions and challenges along the way. But, by this stage in your real estate journey, you’ll have the background necessary for real estate development.
As we’ve illustrated above, no single path to becoming a real estate developer exists. Rather, successful developers come from a variety of backgrounds. Depending on your particular interests, following the development track through any of these fields will allow you to become a successful real estate developer.
If you’d like to discuss different real estate investing options for your unique situation, we’d love to chat! Drop us a note, and we’ll set up a meeting to talk about available real estate development opportunities.