In this article, I will share with you how to become a real estate developer by following ten simple steps. Steps that can help you to think the unthinkable in the real estate business and make you a billionaire.
There are more than 256 real estate billionaires around the world, and the number is growing continuously, according to Hurun research. They said the richest real estate developer in the world is Li Ka Shing, who has a net worth of more than $33 billion. So you become prepared before the big jump on how to become a real estate developer.
Table of Contents
- How to Become a Real Estate Developer
- 1) Get Familiar with the Local Area
- 2) Understand where You Are in the Real Estate Cycle
- 3) How to Become a Real Estate Developer via a Good Location
- 4) Develop Buildings for Both Sale and Rent
- 5) Set Your Minimum Return on Development
- 6) Don’t Purchase the First Land You See
- 7) Property Developer Business – The Due Diligence
- 8) Buy The Land in A Down Market
- 9) Keep Away from Green Fields Where No One Lives
- 10) Get Yourself a Good Team whom You Can Trust
How to Become a Real Estate Developer
So how to become a real estate developer. Here are the steps:
- Where to invest, how to invest, and what exact thing to build.
- What is the real estate market cycle, and how to use it?
- How to find a great location to start the project.
- What is your end goal to sell it or rent it out?
- Your return on development.
- What land to choose and what you must avoid.
- How to buy land at a discounted price.
- How to build a great real estate team.
I will share everything about the how to become a real estate developer step by step. Make sure you read it till the end. So let’s start with the local area.
1) Get Familiar with the Local Area
If you are just beginning, build something near your neighborhood. Get familiar with your local market. Analyze every inch of the market and try to find an opportunity to build something.
Look out where the market is movies, in what direction (forward or backward, right or left). If people are building retail outlets, apartments, or any buildings in that direction, the market is moving towards it. Focus on that direction also.
If you build something in the opposite direction, then your building might not sell. You need to follow the direction of the trend. We will talk about this in the next point.
Find a Depressed Area
Here you find a depressed area with good potential. An area where people want to live but lacks infrastructure. It seems like an old city. That area can give your good returns if you build something there. Remember:
- Powerful people don’t come from the powerful place. They make places powerful.
Find a depressed area and focus your effort all on that.
Now you might be thinking, where I can get all the data about that area. Contact a good agent in that area. They will help you. They know how the real estate market is performing now. Are people buying houses? They know everything, ask them and collect your data and put it in CRM software to analyze later.
2) Understand where You Are in the Real Estate Cycle
Next, identify the real estate developer cycle. There are four phases in a cycle phase, and those are:
i) The Recovery Phase
In this phase, the market is just recovering from a recession. The vacancy is declining, but no new constructions are happening. If you see this, know we are in the recovery phase. It’s the best time to buy land because the prices will be low at that time. A recession is not for selling more but for buying more properties.
ii) Expansion Phase
In the 2nd phase, the market is expanding. The vacancy is declining rapidly, people are buying homes and renting them, and new constructions are also started. Overall the market is improving. There is still time to buy lands for development. Don’t let it pass. Make a move now.
iii) Hyper-Supply Phase
In this phase, the best things are stated to happen. People are leaving houses, the vacancy is increasing, and construction is still happening, but slowly. If you see this, know it’s time to sell your property. The market is facing a hyper-supply situation where they have built more than enough houses.
For example, the demand in the market says in the next two years, 100,000 houses are required, but they have already built 150,000 Houses, more than enough that is hyper-supply, time to sell.
iv) Recession Phase
Vacancy is increasing rapidly, construction stopped, and the market is going down. That is a recession. Sell your house before that happens. Otherwise, no one will pay you your asking price.
Look at this picture taken from Mueller Real Estate Finance, 1955. It shows perfectly what the cycle looks like in a graphic.
Understand where you are in the cycle and act accordingly. Otherwise, you will lose a lot of money. The market is tough. It will not spare you.
3) How to Become a Real Estate Developer via a Good Location
Location, location, location, the location is everything in the real estate business. A good location is equal to good profit.
In a down market, you will face problems if you had not chosen a great location in the first place. In an upmarket, everyone will make money, but the problem is how are going to make money in a down market? The answer is by selecting a good location and building good quality homes.
So how can you find a great location? Answer these questions:
- What are the demographics of the area?
- What is the salary level in the area?
- Is there a college population looking for a place to live?
- Where is the employment center?
- Are there new businesses and jobs that are getting created?
- How will you feel if you are the buyer?
- Will you enjoy living in there?
- Ask yourself, what can I build and what price can I charge?
If you answer these questions carefully, I am sure you will find a good location. A location will outperform everything. I believe it is your No1 priority to analyze it before you make any decision about the investment.
4) Develop Buildings for Both Sale and Rent
Tell me, why do you want to build a huge building? To sell it or rent it. You have to be clear about it. In some areas, people only buy homes, they don’t rent them, and in some areas, people only rent houses, they don’t buy them, and also in some areas, both things happen.
Whatever your motto, know this, the interest rate will have an effect on buying and renting homes. If the interest rates go up, people will rent more houses, as they can not afford to buy them. If the interest rate goes down, people will buy their dream homes. The interest rate will decide whether people will buy it or rent it.
This means you must track the interest rate, demand and supply, and vacancy rate before selecting the land to build something.
5) Set Your Minimum Return on Development
Most real estate developers set a minimum return on investment of 20%. If they can not get it from that area they will not invest there. In this business 20% is nothing, people earn more than 50% by selling their developed houses.
If the market goes down for any reason, you have to sell it for a lower price. That will cut low your margin and your return on investment. So first learn, what is the minimum return in this area? Will people buy my apartments? And then invest.
But where can I get all this data? Ask a nearby agent. He will help you to find all these. Have an agent in your team, so you don’t have to find it by yourself when you need some important data. He will do the work for you.
6) Don’t Purchase the First Land You See
Most beginner real estate developers buy the first land they see or after seeing 2 to 4 lands. They build big houses there in the hope that they will make huge amounts of money.
But, the reality is different. Their houses are not selling. They realized that land has some problems, and the market is contracting, not expanding. So they have to sell it for a lower price. They have no other options.
Whenever you try to build something, at least analyze 10 to 20 good lands or properties before investing in a single penny. That way, you will learn a lot about land investment and problems.
Don’t hurry, buy the right thing, and remember this formula if you are serious about becoming a successful real estate developer.
- Your profit is made when you buy, not when you sell.
Buy it right so you can sell it right, not tight. Analyze more lands before finalizing one.
7) Property Developer Business – The Due Diligence
Now you look for how to become a real estate developer with good land. So, After seeing land for development, start your due diligence process. In due diligence, there are five steps to analyze land, and those are:
i) Physical Review
What does the land look like, what are the soil compositions, is it in good condition, and will the building last long. You must analyze all these. Hire an engineer and let him verify it properly. If the land is near a river, then do the research carefully. You don’t want to build something too close to a river. It might collapse after some years. Do a physical review and make sure you are building it in the right place.
ii) Legal Review
Check all the legal codes in the area. Make sure the property follows all of them. Ask your lawyer to verify all the documents. Remember, one single legal dispute can damage the investment. It will remain vacant for years if you don’t analyze it carefully. Never mess with the law and analyze it with a certified lawyer.
iii) Title Review
People do a lot of frauds and scams via this tile document. They will sell you the property they don’t even own. And also, there are some hidden problems in the title deed that you must discover before purchasing the land. The world here ‘Before’ Do everything you can before making the payment.
iv) Third-party reports review
This might not be required. A third-party report will verify the environment, the condition of the property, and the appraisal value in the near future, and also they will study the market for you. If you are building a huge building, I advise having a third-party review in place for a better understanding of the situation of the property.
v) Accounting and Tax Review
It is the last step to due diligence. Check the tax codes and accounts, and reduce your taxes as low as possible. Hire a tax advisor and an account to do all the work. Don’t neglect it. It can cause some serious problems in the future.
Do this five due diligence process, and you will discover the undiscovered, and then you can make your final decision.
8) Buy The Land in A Down Market
How to become a real estate developer without buying good land? No, it’s not possible.
Do you remember the 2008 market crash? It was a crash for most people, but some good investors made lots of money. They did not sell their properties or stocks. They bought more of those. Because they knew it was time to buy, not to sell.
The same thing happened a year ago during the pandemic. Those intelligent investors bought a good amount of lands, apartments, houses, gold, stocks, and anything they thought might become profitable after all these become normal, and they were right.
You make the highest profit if you buy something in a down market because ‘your profit is made when you buy, not when you sell. Try to find a down market. Be ready to face a market crash. That is your opportunity to become wealthy.
9) Keep Away from Green Fields Where No One Lives
Never build something near a green field where no one lives. Most beginner developers make this mistake, and it costs them dearly. Build your apartment where people are, and those places might be:
- Near a School
- A Hospital
- Metro Station
- Bus Stop
- Shopping Mall and
- Any Famous Place
Build property where people want to live, not where you think it will become profitable. Avoid green fields when investing.
10) Get Yourself a Good Team whom You Can Trust
My last point on how to become a real estate developer. A real estate business is a team business. Without a team, you might not succeed. You can not manage all those things to complete development. You must hire a team to do all the work. People in that team includes:
- A Real Estate Attorney
- Property Broker
- Interior Designer
- Civil Engineer
- Professional Surveyor
- Escrow Officer
- Title Agent
- Mortgage Broker
- Insurance Agent
- Tax Manager
- General Contractor
All these people are crucial team members of your business. You can’t neglect anyone. If you want to become a successful real estate developer, hire a team.
So, now you know how to become a real estate developer if you follow these steps with a complete focus. I hope all these formulas will help you succeed. If you like my work, share it with your friends. Thanks, see you at the next one.