7 Steps on How to Become a Real Estate Developer. *AMA on RE Development*

[MoneyDoc]

@Antifragile thanks again for this amazing thread and the wealth of knowledge you're sharing for free.

Say you have investors lined up, money in hand, and you have found a great redevelopment deal which will involve rezoning to permit 10 townhomes on a decent sized lot that currently houses 2 detached homes. So you'll need to assemble the lot and rezone.

The homes are owner occupied, so you can get traditional loans.

You closed on the homes and now you're carrying either a mortgage or an interest-only loan.

Assuming you're a new developer, who's covering these payments until you start the redevelopment process. This is something that has always boggled me. I find great deals, I get money lined up, then I realize I need to take care of $5000/month interest payments while also covering my own personal expenses and I slowly turn the chapter over (lol).

Is there a type of loan I'm not aware of that would not have this issue? This wouldn't be an issue with cash deals but most of what I've been offered is just acquisition of the property on terms of a bare minimum downpayment to get a loan on the property/land/etc.

 

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[Antifragile]

@Antifragile thanks again for this amazing thread and the wealth of knowledge you're sharing for free.

My bill is in the mail

Say you have investors lined up, money in hand, and you have found a great redevelopment deal which will involve rezoning to permit 10 townhomes on a decent sized lot that currently houses 2 detached homes. So you'll need to assemble the lot and rezone.

The homes are owner occupied, so you can get traditional loans.

You closed on the homes and now you're carrying either a mortgage or an interest-only loan.

Assuming you're a new developer, who's covering these payments until you start the redevelopment process. This is something that has always boggled me. I find great deals, I get money lined up, then I realize I need to take care of $5000/month interest payments while also covering my own personal expenses and I slowly turn the chapter over (lol).

Is there a type of loan I'm not aware of that would not have this issue?

You are correct. That is the process.

Some thoughts / ideas to play with:

• Land loans are typically Loan to Cost (LTC) and/or Loan to Value (LTV) tested. You would borrow anywhere from 50% to 60% LTC as interest only. Try to go for the full 60% from a tier 1 lender and get sharp pricing (Prime +1% type). This gives you that 10% you just financed to spend on rezoning activities.
• Mezzanine loans. You can take a 2nd position loans from private lenders to "bridge" you through the rezoning process. They are pricey, typically starting in double digit rates. But can be worth it if you are pinched for cash.
• Could you avoid rezoning in the future by acquiring sites that are appropriately zoned? This way you go straight to DP/BP, pre-sales and then construction. Today that's a bad idea, construction costs are too high and I would want nothing to do with "shovel ready" sites.
• Increase you investor pool and bring in more equity. This way you are not worried about tier 1 or 2 lender forcing you to dispose of your lands because you are behind in your rezoning. And I expect you to get behind on your schedule as most municipalities are horrendously behind ... and land loans are typically for 1 year (max 2 with extensions).

 

[MoneyDoc]

@Antifragile Curious to see how you approach deals/your thought process.

Say you come across the following deal. How would you approach it? For me, I find something like this, I know it's potential opportunity, then I get stuck. Okay, now what? Why isn't the seller forming a partnership with a developer and developing the site? Why is such a site not off market if its so good? Then I just zone out and take no action.

Bayview Ave. is a MAJOR street in Ontario. Think of it as Yonge St. in downtown Toronto. This land has frontage on Bayview Ave.

Asking Price: $12.9m

Zoning: Residential Multiple Family

Property is vacant land: 191 x 434 FT

Proposed GFA of ~71,000 Sq.Ft

Seller has done a lot of due diligence and believes the best way forward is around 26 3-storey townhomes. There are a bunch of similar townhome developments encircling this land. Most recent sales for 3-storey townhomes surrounding this land average around $1.3m - $1.5m.

Location is minutes away from major highways including a toll highway.

Location is minutes away from transit including this specific cities biggest bus centre.

Future subway transit extensions minutes away from this land.

Very popular area in this specific city.

 

[Antifragile]

@MoneyDoc

I have limited time at this very moment, but good deals tend to need immediate action. If you feel the math pencils, tie it up for the longest due diligence period you can. Can you get 120 days? Refundable deposit of $50k. Subject removal after 120 days with another deposit of say $300k but now non-refundable and applicable.
Then you go to work:
- Architect for concept
-Soils, environmentals etc.

Will try to post more thoughts tomorrow … got to run.

 

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[Antifragile]

@MoneyDoc

Alright, getting back to this with a morning coffee in hand.

Step 1 is to go there and walk the site. There is nothing that can replace your physical view point. You will notice things - write them down. Example: would you want to live there? How about your parents? Who is already there? Is it tidy or dirty around? What kind of cars are parked on the street etc. You get the point.

Things I see from the image you attached, asking questions:

• I see trees on site. Is there a tree replacement bylaw?
• Bayview access is right in only. There is no left in.
• Fire truck access. Is there an exit from the site at the back? How will fire department come in and out of property?
• Will you have to go underground for parking? That's VERY expensive.
• What is currently on site? Do you need to relocate anyone or replace any rental units?
• Who is next door? Anyone who'll be anti-development here?
• What are the soils like? With this many trees, is there a creek running through the site? Any environmentally sensitive areas that you'd be forced to preserve? Like a small pond for frogs? Not joking!
• What are the soils like? Cost of construction changes drastically with soils conditions.

Just a brain dump.

I'll reiterate - in real estate, I found that action beats inaction. If you can tie it up and then work through these questions WHEN you have CONTROL over the site, you either drop it when it doesn't work or buy it.

Good luck, hope this helps.

 

[MoneyDoc]

@MoneyDoc

Alright, getting back to this with a morning coffee in hand.

Step 1 is to go there and walk the site. There is nothing that can replace your physical view point. You will notice things - write them down. Example: would you want to live there? How about your parents? Who is already there? Is it tidy or dirty around? What kind of cars are parked on the street etc. You get the point.

Things I see from the image you attached, asking questions:

• I see trees on site. Is there a tree replacement bylaw?
• Bayview access is right in only. There is no left in.
• Fire truck access. Is there an exit from the site at the back? How will fire department come in and out of property?
• Will you have to go underground for parking? That's VERY expensive.
• What is currently on site? Do you need to relocate anyone or replace any rental units?
• Who is next door? Anyone who'll be anti-development here?
• What are the soils like? With this many trees, is there a creek running through the site? Any environmentally sensitive areas that you'd be forced to preserve? Like a small pond for frogs? Not joking!
• What are the soils like? Cost of construction changes drastically with soils conditions.

Just a brain dump.

I'll reiterate - in real estate, I found that action beats inaction. If you can tie it up and then work through these questions WHEN you have CONTROL over the site, you either drop it when it doesn't work or buy it.

Good luck, hope this helps.

Ladies and Gentleman, the difference between a successful developer and a total noob (me). It didn't even cross my mind to think about the fact that there is no left access.

Thank you man! The fact you actually take time to write meaningful replies, says a lot about you and I attribute that characteristic to your success. You don't half a$$ anything and it shows.

Two questions if you don't mind:

1) The white building on left of this land in the picture is a religious centre. What's usually your take if you find a residential parcel of land situated next to a religious centre? I know some people don't prefer buying homes right beside a religious centre (even people of the same faith), the same way some people just don't ever consider buying beside a graveyard.

2) You mention "If you can tie it up and then work through these questions WHEN you have CONTROL over the site, you either drop it when it doesn't work or buy it." I'm assuming you mean the following: refundable deposit, quick 30 days due diligence, if everything seems okay, negotiate a non-refundable deposit for a much longer "study" period where you conduct the studies for soil, trees, architectural, planning, etc.? After all, what does the seller have to lose, right? You don't move forward and they get free money and although you lose say $250k, you avoid losing millions when you find out they won't let you remove all the trees and it greatly reduces your buildable area in which you won't even breakeven building at the cheapest construction costs.

 

[Antifragile]

Ladies and Gentleman, the difference between a successful developer and a total noob (me).

Thank you man! The fact you actually take time to write meaningful replies, says a lot about you and I attribute that characteristic to your success. You don't half a$$ anything and it shows.

Thank you for your kind words bud. People help me all the time, I am passing it forward. Thrilled to be here and share what I know. (Thanks @MJ DeMarco for providing this platform).

Two questions if you don't mind:

1) The white building on left of this land in the picture is a religious centre. What's usually your take if you find a residential parcel of land situated next to a religious centre? I know some people don't prefer buying homes right beside a religious centre (even people of the same faith), the same way some people just don't ever consider buying beside a graveyard.

Interesting... I have no hesitation building next to churches or mosques etc. In fact, I see it as an opportunity. Typically these groups will own their land outright and they don't utilize the parking they have at all. They are also always lacking funds to do good. It's the typical mandate to do good in the society, the money is collected from members... There is another way.

You can JV with them and make your site problems partly go away. Think about it. They have "free" land. You can now afford to go underground for parking. You can give back all parking they lost to them at a fraction of the market cost. You can improve your site layout and design and give them profits from whatever you build on their side of the lands. You can even make it "attainable housing" for hero services like police, ambulance, firefighters etc. It is an opportunity, not a drag.

Unless of course it is run by some hard core who knows what ... but that's not typical in Canada.

2) You mention "If you can tie it up and then work through these questions WHEN you have CONTROL over the site, you either drop it when it doesn't work or buy it." I'm assuming you mean the following: refundable deposit, quick 30 days due diligence, if everything seems okay, negotiate a non-refundable deposit for a much longer "study" period where you conduct the studies for soil, trees, architectural, planning, etc.? After all, what does the seller have to lose, right? You don't move forward and they get free money and although you lose say $250k, you avoid losing millions when you find out they won't let you remove all the trees and it greatly reduces your buildable area in which you won't even breakeven building at the cheapest construction costs.

No, allow me to clarify.

Deposit 1 - $50,000 - refundable.
Due diligence period - 120 days.

This is your time to do the work and spend your money on all the work listed above. Since you will be out approximately $30k to $50k in your hard cash on due diligence, you should NOT have any non-refundable deposits with the Vendor (Seller). If you drop the site later, you can try to sell those reports for 50c on the dollar back to the vendor.

After your 120 DD period, you know you love it and want to close. You have a commitment letter from your lender. You have your equity lined up. All you need now is to actually put the legal structures in place and fund the bank loan. This takes no less than 30 days, but typically 45 days.

I would go in with Closing to occur 60 days after the DD period. At this stage you know you like it and will buy it. You now give the Vendor (Seller) certainty by giving them non-refundable deposit for anywhere between 5% of the Purchase price and 15% of the Purchase Price. It's up to your negotiation skills to keep that number as low as possible .

 

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[football4life]

In case you haven't noticed, real estate is kind of a big deal.

Just think about it – where would we all be without homes to shelter us, shops to buy our groceries, or offices to work in? Pretty much nowhere, that's where.

And when it comes to real estate development, things get even more interesting. After all, it's the developers who are responsible for creating all these places we call "homes" and "offices".

But what exactly is real estate development?

I struggle to find other job description as varied as a "Developer".

Development ranges from the acquisition, renovation, and re-lease of existing buildings to... Buying raw land, carving it and and the sale of parcels to others. Developers convert ideas on paper into real property. Because developers are responsible for the success or failure of a property, they typically take the most risks. And as with any value skew they can receive the greatest rewards.

Real estate development is a process. It is planning, designing, financing, constructing, and managing of real estate. In other words, it's the business of creating homes, shops, warehouses and offices.

There are a lot of different challenges that come with this line of work. For example, developers need to be well-versed in a variety of areas, including construction, law, finance, and marketing. They also need to be able to think on their feet, as the market for real estate can be very volatile. The approval and construction time is long and can crest a market cycle!

Different developers focus on different areas of real estate. Some specialize in residential development, while others focus on commercial or industrial projects. There are also developers who work on a mix of projects, or who simply dabble in a bit of everything.

Whatever their focus may be, one thing is for sure: real estate developers are essential to the success of our communities.

Here I give you a 7 Steps on How to Become a Real Estate Developer. For $9.99 you get this course. But wait, there is more! ...

If you have been on this forum for more than a minute, you know I lied about the course or the exact 7 steps. There is no such thing as a "follow these steps" recipe in business and RE Development is no exception. Instead of expecting a course, you can...

Ask me anything on RE Development.​

The real estate industry is divided into: residential, office, commercial, industrial, and land. I will answer questions about: residential (rental and condo), office and industrial.

The process:

• site acquisition,
• regulatory approvals,
• market analysis,
• design and planning,
• construction and development financing,
• joint ventures,
• construction,
• marketing and sales.

I will answer questions on specific parts of the development process.

Like any business, there have been books written. Volumes of books on various parts of the process. I'll do my best to answer questions.

For more info on me and what I do, please listen to @Kak Kyle Keegan Radio show.

All questions here are welcome here.

is it actually possible to get wealthy with real estate while being young (less than 30)? i've read the millionaire fastlane and in the book he says that wealthy real estate investors are usually older (45 and up), and it might be true. haven't seen any wealthy (10$m net worth and up) real estate investors under the age of 30 so far.

 

[NeoDialectic]

Amazing thread! Thank you for all your insight and willingness to go into detail. I'm not in real estate developmentbut it is nonetheless fascinating and helpful to my thinking in other ventures.

I have always been interested in real estate development as a topic, but thought it was likely not for me based on my life circumstances right now. I was right! But I respect your work and maybe one day the moons will align!

Your thread inspired me to write a thread of my own on choosing the type of business you go into carefully. You can either reply in my thread, here or both places. Here are my questions to you:

Keep in mind that I am not saying your answers are obstacles that cannot be overcome. Simply that these things would be big obstacles.

1. What kind of personality traits do you think would be advantages in your business?
2. What kind of personality traits do you think would specifically be detrimental to your business?
3. What kind of life circumstances do you believe are detrimental to your business? (ex. It would be very difficult to be a real estate developer with no experience in real estate and no starting capital of your own)

I know you and @Kak discussed in this thread that you don't think you are special or the best in the world at everything. I hardcore believe that almost anyone can eventually accomplish anything they want, within reason. So I am not referring to that angle. I am speaking to the traits and life circumstances that have helped or hurt you and others in your specific role.

Thanks again.

 

[Antifragile]

Quick thought of the day...

Under CENTS framework, you must have control.

In RE Development, this means you must control at least one of the following 4 to succeed:

1. Land
2. Capital
3. Knowledge
4. Tenants/Buyers

If you don't control any of the above, the odds are stacked against you and I wouldn't bother trying.

 

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[jdm667]

Quick thought of the day...

Under CENTS framework, you must have control.

In RE Development, this means you must control at least one of the following 4 to succeed:

1. Land
2. Capital
3. Knowledge
4. Tenants/Buyers

If you don't control any of the above, the odds are stacked against you and I wouldn't bother trying.

What if you have some sort of pull within local government (connections or influence over zoning board, building/gas/wiring inspectors, etc.)? Do you think that helps enough to outweigh lack of control in other areas?

Maybe that falls under knowledge: knowing ahead of time that the zoning in an area is going to change, and acting accordingly.

Sort of the "INSIDERS Trading" of real estate.

 

[Antifragile]

What if you have some sort of pull within local government (connections or influence over zoning board, building/gas/wiring inspectors, etc.)? Do you think that helps enough to outweigh lack of control in other areas?

Maybe that falls under knowledge: knowing ahead of time that the zoning in an area is going to change, and acting accordingly.

Sort of the "INSIDERS Trading" of real estate.

We play by the rules. I try to influence councillors and public out in the open, during our rezoning applications. If you somehow had that unfair advantage of knowledge to future zoning (like you see on tv drama - criminal shows)... then let me ask you, wouldn't you secure the land immediately? Wouldn't you want to control the land?

 

[MoneyDoc]

We play by the rules. I try to influence councillors and public out in the open, during our rezoning applications. If you somehow had that unfair advantage of knowledge to future zoning (like you see on tv drama - criminal shows)... then let me ask you, wouldn't you secure the land immediately? Wouldn't you want to control the land?

Curious, is there even that sort of stuff going on in Canada where let's say a powerful developer, has councillors and those responsible for zoning approvals, permits, etc. in their "pockets"?

I don't think I've ever read a headline of that sort of thing happening here.

 

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[Antifragile]

Curious, is there even that sort of stuff going on in Canada where let's say a powerful developer, has councillors and those responsible for zoning approvals, permits, etc. in their "pockets"?

I don't think I've ever read a headline of that sort of thing happening here.

I can't recall reading anything like that either... and I've been in the industry for over 15 years. Not to say it doesn't exist

 

[jdm667]

We play by the rules. I try to influence councillors and public out in the open, during our rezoning applications. If you somehow had that unfair advantage of knowledge to future zoning (like you see on tv drama - criminal shows)... then let me ask you, wouldn't you secure the land immediately? Wouldn't you want to control the land?

I agree that it is an unfair advantage. Even just knowing what would fly with local government and what would not is an advantage over someone who has no clue.

 

[gpetukhov]

Cool thread. Ive been quite successful in the realm of real estate. Timber and land to be precise. Ive been a forester for 25 yrs. Owned my own forestry consulting firm for 15. Ten years ago bought my first parcel, cut it , paid for it with the timber and sold it to an abutter for exactly what I originally purchased it for. Made six figures in less than one month. Since then Ive averaged one of these deals a year. Was on a roll to up the # of deals p/yr to 3-4..but the market in my state , since 2021..is too hot for my level of risk. Im a strategic risk taker not a reckless speculator. Seeing where the market was headed, I got my real estate license in 2020, and have since focused on representing the selling of large timberland parcels vs the buying of them. And..when they sell providing forest management services to the new owners.
Its a good gig and that brings great satisfaction. But..Im chopping at the bit for the market to cool and for good deals to make a reappearance. Buying timberland for myself is my real passion.

Great stuff ,

I've recently read that timber prices have been in a bear market for the past 25 years. Did the lack of rising timber prices affect your returns significantly or were you able to negate that through harvesting and land appreciation ?

 

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[DavidePaco00]

In case you haven't noticed, real estate is kind of a big deal.

Just think about it – where would we all be without homes to shelter us, shops to buy our groceries, or offices to work in? Pretty much nowhere, that's where.

And when it comes to real estate development, things get even more interesting. After all, it's the developers who are responsible for creating all these places we call "homes" and "offices".

But what exactly is real estate development?

I struggle to find other job description as varied as a "Developer".

Development ranges from the acquisition, renovation, and re-lease of existing buildings to... Buying raw land, carving it and and the sale of parcels to others. Developers convert ideas on paper into real property. Because developers are responsible for the success or failure of a property, they typically take the most risks. And as with any value skew they can receive the greatest rewards.

Real estate development is a process. It is planning, designing, financing, constructing, and managing of real estate. In other words, it's the business of creating homes, shops, warehouses and offices.

There are a lot of different challenges that come with this line of work. For example, developers need to be well-versed in a variety of areas, including construction, law, finance, and marketing. They also need to be able to think on their feet, as the market for real estate can be very volatile. The approval and construction time is long and can crest a market cycle!

Different developers focus on different areas of real estate. Some specialize in residential development, while others focus on commercial or industrial projects. There are also developers who work on a mix of projects, or who simply dabble in a bit of everything.

Whatever their focus may be, one thing is for sure: real estate developers are essential to the success of our communities.

Here I give you a 7 Steps on How to Become a Real Estate Developer. For $9.99 you get this course. But wait, there is more! ...

If you have been on this forum for more than a minute, you know I lied about the course or the exact 7 steps. There is no such thing as a "follow these steps" recipe in business and RE Development is no exception. Instead of expecting a course, you can...

Ask me anything on RE Development.​

The real estate industry is divided into: residential, office, commercial, industrial, and land. I will answer questions about: residential (rental and condo), office and industrial.

The process:

• site acquisition,
• regulatory approvals,
• market analysis,
• design and planning,
• construction and development financing,
• joint ventures,
• construction,
• marketing and sales.

I will answer questions on specific parts of the development process.

Like any business, there have been books written. Volumes of books on various parts of the process. I'll do my best to answer questions.

For more info on me and what I do, please listen to @Kak Kyle Keegan Radio show.

All questions here are welcome here.

Thanks! I'll read through all the course!

 

[Guest-5ty5s4]

Curious, is there even that sort of stuff going on in Canada where let's say a powerful developer, has councillors and those responsible for zoning approvals, permits, etc. in their "pockets"?

I don't think I've ever read a headline of that sort of thing happening here.

I can't recall reading anything like that either... and I've been in the industry for over 15 years. Not to say it doesn't exist

Yep, the fact it isn't reported doesn't mean it's not happening. Quite the contrary

We had a local city manager recently get decades in prison for embezzling money from the city/taxpayers. Oddly enough all of his buddies on the city council are still there!

I've seen public works facilities suddenly get turned into restaurants and stuff like that too. Lol...