Getting started in real estate construction
Almost 80% of Belgian millionaires who work have real estate. One of the best known principles would be that it is necessary to own millions to start in real estate. Obviously, this is wrong. Fortunately, this is not an area reserved for the rich, because it is one of the safest and most rewarding values in the world of work.
Real estate investors sometimes buy turnkey properties, but more often than not they build properties.
Real estate developers sometimes choose to buy an existing house, but generally they are more interested in developing it.The main advantage of real estate if you do it right is that it is possible buy properties that are worth little, and renovate them in order to derive exceptional value from them. This is what the profession of real estate developer consists of.
It’s risky, but also rewarding if successful. Many of these investors work with real estate development companies to achieve their investment goal.
To get started in real estate development, you need to understand the processes involved. You will go through three general steps:
Before taking a closer look at these steps, it’s a good idea to brush up on your understanding of what real estate development really is and how you do it.
How to understand real estate development?
“Real estate development is the process of creating value by making tangible improvements to real estate.”
When you develop real estate, you are building new structures, modifying existing structures, or generally improving any property to increase its value. Real estate includes land and temporary or permanent structures occupying such land.
What do you need to get started in real estate development?
The process to become a developer varies from state to state, but the basic necessities remain the same.
As a real estate developer, you will carry a lot of responsibilities, so a broad base of knowledge and experience is vital. In most countries, you don’t need to acquire a specific professional degree or certification to become a developer, but having a real estate degree will help you tremendously on your journey. These include, but are not limited to, civil engineering, urban planning, finance, business management, or a degree in commercial real estate. Some schools offer masters in real estate development which can also help you get started.
As important, if not more, than your formal degree is your “field” experience. Experience working in real estate, as an agent, broker, analyst, etc., will prepare you to become a developer – but other professional fields have their value as well. Careers in finance, sales, construction, and many other fields like that can be just as relevant to being a successful real estate developer.
Many students begin to work as commercial real estate brokers where they learn the ins and outs of the dynamics of buyers and sellers. From there, they evolve to help sponsors raise debt or equity for transactions. This can be one of the best ways to train yourself in real estate development.
Your “social” capital, that is, your professional and personal relationships, will also have a disproportionate impact on your prowess as a developer. Simply put, the more people you know with whom you have a good relationship in a market, the more effective you will be. This includes people like brokers, who can help you find deals, title agents to help you with transactions, lawyers to help you with development legal matters, and anyone else who can help make your business. more effective and efficient process.
How to start as a real estate developer?
There is a fairly simple process to start real estate development:
Learn about the main knowledge you need
You cannot go into any type of investment without understanding the basics of the market. Learn the best ins and outs of real estate before you try to invest in it. No degree is needed, although it doesn’t take long to get a real estate license for full subject coverage. If you’ve worked in real estate in any capacity, you probably already have some basic knowledge.
You must create your team
Unless you plan to do it all on your own, find team members who can do it. A trusted team includes other developers, legal staff, architects, engineers, finishers, day laborers, etc.
Some teams can be formed over time. Otherwise you can always work alongside an established developer to start with.
You must find a first project
Find a project that meets your investment criteria and that makes sense for your team’s capabilities. For starters, you can join an existing project for more experience or search for your own property.
You need to develop your financing plan
You need capital to buy the property you are going to develop, even if you don’t have to pay it yourself. Working with investors gives you more opportunities for commercial properties, although you will likely need an experienced partner to gain investor confidence.
Congratulations! You have embarked on real estate development! Unfortunately, getting in is the easiest part. The challenge is to make it a profitable investment. Here is more information on real estate development .
What are the different stages of real estate development?
The real estate development process consists of three main stages. There is work to be done before these steps, including checking out opportunities and buying a property. Finding and validating a real estate transaction is a subject that needs its own time. Speaking of the 3 stages of real estate development, we take a look at how to proceed after a purchase.
Every step of the real estate development process is important. You cannot skip the steps or try to perform them out of order. If you don’t follow the logical order, you risk making mistakes. Mistakes lead to losses. By minimizing errors and only making well thought out, reasonable decisions, you are more likely to achieve a net gain than a net loss.
After finalizing the purchase of a property, you will start with pre-development before moving on to real estate construction and post-development.
Going into construction without going through the planning and analysis phase is for sure a disaster as a result, just as you cannot go through the planning phase and expect good results to come after development if you do a job. of poor quality during the construction phase.
How to prepare for real estate development?
Start the pre-development with a thorough analysis of your property. You may have been able to inspect before buying, but now you need to analyze with a critical eye to determine how you can really add value to the property. Hope you have some ideas based on your purchasing criteria.
Pre-development is likely to be one of the longest steps in the real estate development process because you want to plan all of your steps. Raise and solve all possible problems, so that you can deal with them before you start building.
How to analyze your market?
Like a farmer who plants a seed, you want to make sure you choose fertile ground in which to grow your “crop”. Different markets operate according to different investment strategies.
For example, for more stable, but less lucrative returns, you might want to invest in more expensive markets with low cap rates, for more risk and more returns, you can look at tertiary areas with low cap rates. higher capitalization.
In most cases, you want to find markets with positive population growth, a diverse job base, and a well-educated population. Proximity to urban cores or economic centers is also a major asset.
Find a property
Once you’ve established yourself in a market, it’s time to find a property. Just like in the residential real estate markets, digital ads are incredibly popular, with sites like ikea, leroy merlin, the major commercial real estate platforms offering retail, shopping, office, industrial, self-storage and other types of properties.
That said, despite the growing influence of digital platforms, much of the real estate business is still face-to-face, and brokers and can be great sources of off-market transactions. Your third option is to contact owners of commercial properties within your designated market to see if they are ready to sell. This approach takes a little more effort, but can be very rewarding because of the potential to pick up a property before other investors have a chance to make an offer.
It is essential to take into account these conditions:
- Property area
- Local government policies
- Construction design
- Tenants negotiations
- Cost analysis and redesign
- Market analysis
- Community public participation, as needed
Take your time to do this step well. While you want to cross it quickly to avoid excessive holding costs, you don’t want to overlook something that will end up eroding your profit margins.
Before you order the construction crew to proceed, you need to be sure everything is ready. If you’re not confident in your plans, keep planning or get a second opinion from a trusted source. You can also find the answers to many of your questions online on the Internet, for example on this site for the legal aspects of property management.
How to start construction?
Once you’ve given the construction crew the green light, your job is to keep a close eye on them. You might not be a construction expert, but you can hire an expert to help make sure things go smoothly. This is the most expensive step in the process and it is seldom possible to correct a mistake without paying for it.
If you haven’t done your pre-development work thoroughly, you may run into more problems during construction.
If you’ve covered the potential issues well, construction should move forward in a relatively predictable fashion. There is always the possibility that something will go wrong, even if you have planned it well.
Here are some questions you can ask yourself:
- Are all the rules followed?
- Is everything up to code?
- Is the team on budget?
- Are things happening on time or not?
Payment to construction crews is based on time and effort expended throughout the project. Each time a milestone is reached, more of the money is released until all is done. Final payment is made after you have inspected and approved the entire project.
Whether you’re building a new plan from scratch or renovating / modifying an existing building or complex, you need to keep a close eye on what’s going on. If you aren’t informed enough to know when something is wrong, hire someone who has to keep up with what’s going on on the site. This is essential to ensure that the build process runs smoothly and that the team is doing things right.
Poor quality work is easier to see when it’s done than after things are finished and refined for the opening of the building. If any corners are cut, something will fall apart or at least require a quick renovation, costing you dearly down the line.
What do you have to do after construction?
You have two choices after construction is complete. During the post-development phase, you can either open the building up to the business for rent and manage, or sell it. Once you have completed the development project, you can also use it as collateral for a larger project loan.
If you are going to rent and manage the property, you should already have customers online. Large spaces should have commercial tenants assigned before the building is completed, particularly if the property requires a main store or if it is a larger full space for a single commercial tenant.
Real estate development projects that engage outside investors may decide to lease and manage the building until the investors have had the opportunity to recoup most or all of their initial investment. This is a common practice with multi-family properties, as tenants are generally easier to find and keep. When the property only needs renovations or alterations, existing tenants can stay throughout the buying and building process if possible.
Asset management begins when construction is completed. You are responsible for maintaining the property, making any necessary repairs and general maintenance to keep the asset in good condition. At this point, you are responsible for all taxes, loan payments, and other charges, whether the property is making money or not.
If you choose to sell the property instead of renting it out, you may be able to make a quick profit and start your next project sooner. With this route, you’re more likely to pay higher capital gains taxes, but the ability to bounce back onto a new project makes it ideal for anyone not interested in long-term rental management.