When it comes to real estate development, one of the main questions that is often asked is how much money do they make? When it comes to real estate development, the answer can often be how long is a piece of string? Here we break down and work out how much real estate developers make!
What Is A Real Estate Developer?
Real estate development doesn’t have one specific definition. It is an all-encompassing term used for someone that runs a business around building, renovating, developing, building and then selling or leasing the property on. You can do one part of this process, or all of it, any aspect of that list will make you a property developer, so there is a very wide range in activities you can conduct.
Is Becoming A Property Developer Hard?
A lot of people consider getting into property development as a way of making money, but often they don’t know where to start and what is needed. The first thing that you need to develop property is a high level of capital. You need to have the money to buy into a piece of land or a building and then understand that the money is gone until you can either sell or lease the property. You may also want to consider a team behind you to make the turnaround faster, this is costly, but the time for turnaround is vastly reduced, so you can start earning money off the property or land sooner.
How Quickly Can You Start Making Money?
When it comes to making money, you want to make sure that you can make it as soon as possible to get your investment back. This is especially true if you are new to the property development game. If you are new to this business, you want to turn around a property as quickly as possible in order to release the capital that you invested. It could be prudent to start small, such as a refurbishment. This way you can buy the property, do it up in a relatively short amount of time and then either lease it or sell it on. This way, not only can you make minimum of 10% of your investment if you got it right, but you also start building up your portfolio.
Lease or ReSale?
If you are new in the property development game, then you will want to build your portfolio quickly and retain some of the investment. For first timers, you can expect to make minimum 10% profit once you have sold and paid any traders or outstanding debt. It also means that if you sell the property, you have your capital investment back as well as the profit garnered from resale to invest into your next project. If you lease out the property that you have developed, then you are losing your capital investment, but you will be adding to your portfolio, which you can show to other businesspeople when you are looking for investment. Leasing also gives you a sustained income over a fixed period, so whilst the payoff isn’t immediate, you will get a return on investment.
Complex Property Development
When we refer to complex property development, we’re referring to full lifecycle development, from land acquisition, building and then reselling. This type of development requires a large capital investment as well as a strong team of contractors to get the works completed as quickly as possible. The bigger the team, the higher the overheads but the end result is a faster turnaround that can increase your profits. If you have been loaned money in order to fulfil this project, then you will also have to pay interest on the initial loan. Interest, factored in with costs of labour, cost of land, legalities and raw materials make the repayment high, but if you have made a solid investment, the profit made can be a 50/50 split between costs owed and money made. The return is exceptionally high for large developments, but the risk is also matched. You need to complete extensive due diligence before you make the investment to ensure that there are no surprises. This way, you are going into an extensive project with your eyes wide open.
So How Much Do Property Developers Make?
When it comes to hard and fast figures, it is difficult to give an absolute due to the wide-ranging projects that property developers are involved in and how different each can be. If you are looking at a small-scale renovation project, then you can expect to make a minimum of 10% profit if you resell it once completed. Before you start, you want to make sure that you have a good project time scale and try and mitigate any risks of overrunning before you begin. This reduces the chances of going over budget. If you are considering a full life cycle project, then you could be looking at 50% profit once costs are paid. This is an extensive profit margin, but, unlike smaller projects, it will take a long time to be realised due to the project length. If you are looking for leasing and renting opportunities, you can expect to make a yield of 5% per year on your investment. This will also help you build your portfolio up, but you won’t receive your capital investment back straight away as you won’t be selling the property.
When it comes to answering the question of how much property developers make, the real answer is how long is a piece of string? There are multiple variables that can impact the profit margins when it comes to developing property, but regardless of which avenue you take, whether you opt for renovation or a full lifecycle project, you can be sure that you will get the investment back and more. Conduct your due diligence, make a solid project plan and try and stick to it. These factors can make a huge difference to your outcomes.