Lane Lowry on The Pros and Cons of Real Estate Development
The world of real estate has many roles and job descriptions, many of which overlap. It is easy to confuse terms like real estate builders, investors, and developers. While they may overlap throughout the course of a real estate project, it’s important to note these are distinct and vastly different positions. There are pros and cons to taking on each of these roles, but a real estate developer is really the jack of all trades of the group.
Real estate developers are in charge of preparing a property or subdivision for the purpose of making a profit through selling or renting. They either buy the property themselves or partner with the landowners to develop a plan of what to do next, whether it’s refurbishing existing buildings or starting from scratch with a new venture. The real estate developer is also in charge of bringing in investors to support a project. In order to entice offers, they must predict how profitable the venture will be.
Once contractors are chosen, the real estate developer is in charge of managing the jobs. Once the job is complete, it falls to the real estate developer to sell the completed project to would-buyers. For this reason, a successful real estate developer must have strong people skills, business management skills, sales, marketing skills, and extensive knowledge about the world of construction. They are the liaison between non-industry civilians and the construction foreman on a job. They must be fluent in all the industry jargon, from investors to workers.
Before a real estate builder steps in, a developer has many hats to wear and many hidden costs to keep track of. It is imperative to research the area’s taxes and fees before drafting a business plan to obtain funding and attract investors. Once funding is organized, they need to budget carefully as they obtain all necessary permits, put in the sewer/water/electric lines, land surveys, municipal hookup costs, landscaping, and paving the streets and curbs.
A wise developer will examine whether the risks outweigh the reward before diving into a large development project. They need to consider how much time, stress, and money will be involved in generating enough startup capital, developing the property, being accountable to partners and banks, and the infinite, unpredictable problems that can arise. Even a project that could net millions of dollars in the long-term might end up costing years of frustration and millions of dollars in the short-term.