We all know that real estate developers can make good money. We’ve seen the reality TV about their lives, the cars they drive and the homes they live in, but the question that remains unanswered is how they actually make their money. We know they make it, but what is the process of how they make it? If you’re as curious about this as we are, don’t worry, we’re here to help. Here Onsite Management answers the question of how real estate developers make money.
What Is A Real Estate Developer?
First things first, it’ll help to know exactly what a real estate developer is. They differ from real estate agents, as agents sell the end product. A developer does exactly what it says on the tin, they develop. They could develop an existing property, or they could develop a piece of land, either way, they come in and change something about what it is they have bought to maximise their profit.
When assessing land that developers want to purchase, they need to get creative with the space they have on hand. This space creativity is what gives them the profit. This is a mixture of experience, talent and having a good team behind you. The ideas that a real estate developer may come up with could be those that no one else has thought about. They need to get the maximum they can out of the land that they have bought, be it an apartment block or single homes on one spot. It won’t just be the real estate developer making the choice, they will be advised by an architect as well as someone who knows the government regulations when it comes to building and developing new property. The results that you get are brilliant examples of making the most of space and ensuring that people have excellent living conditions off the back of it.
“Properties are often bought and financed at auction or other direct means with the aim of adding value and making a decent margin,” comments Ruban Selvanayagam of Property Solvers.
The art of real estate development comes from maximisation of the resources that you have at hand and the first thing you need to maximise is land. The first port of call of a real estate developer is finding land that fits the bill of a build. Bear in mind that land in a good location is always going to cost far more money than a piece of land in an undesirable location. This the first big expense of a real estate developer. When they buy the land, they will need to have a clear end goal in their minds to make sure that it is worth the money they have out laid and that means squeezing as much out of it as they can, be it a block of flats or multiple homes in a smaller space.
Real estate developers will have a trusted network of suppliers and traders that they would have built up over the years. This network is important when it comes to making a profit on your build or builds. If you don’t have a trusted network, you may well end up paying well over the odds for something that could have cost you a fraction of the price elsewhere. It pays to know who the good trades people are in particular areas and giving them regular work will ensure that real estate developers will get the price available to them. This maximisation of established networks make sure that they can get the price possible and keep contracts with trusted traders.
The old adage time is money is very pertinent when you are a real estate developer. The longer the development takes, the more money you are wasting with the property or properties not being filled. You sometimes hear horror stories where people have purchased land only for the permitting to not be quite right or an endangered species has been found on there when a survey was done. Either way, real estate developers need to hit the ground running. Once the purchase has been made, they want to be on the plot of land within hours of signing to make sure that work can be started so the land can be turned around.
One of the most important factors when it comes to making money in real estate development is experience. Experience can help developers see when something could make them money or if they would be flogging a dead horse. Whether it is the type of land, the location or the population within the area, having multiple projects under your belt can help you home in on the perfect development. An experienced developer will also have multiple projects on the go at any given point and for that reason will have in invested in a talented project manager. This means that they free up their time to sort out any delivery issues and scope out for new opportunities they can pick up once one of their current projects ends.
When it comes to the question of how real estate developers make their money, the answer is more nuanced than just they build and sell property. There are many factors that influence whether or not a real estate developer is successful and one of those is having experienced people around them. From architects to a solid trader’s network, all these factors work to make sure that the development is achieved in a timely fashion and turned around to a high standard. One of the biggest factors that helps developers make a profit is experience, it is this experience that helps them see the best deals, best location and intimate knowledge of what will work in what area. Real estate development is more than just building houses or apartments, it’s a holistic awareness of the market, location and time.