The Path to Becoming a Real Estate Developer

[buckwild]

A little bit about my background. I'm in college studying Civil Engineering. I'm getting my masters in Real Estate Development.

Whats the best path to becoming a real estate developer?

A. Finding a job with a development company and work my way up to Project Manager or one where I collaborate directly with the developer.

B. Working in the field and get my general contractor's license and a loan officer license or real estate license. (I know the economy sucks now, I'm doing these things for the knowledge and not to make money right now.)

C. Both

 

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[Guest3722A]

residential or commercial?

I ask because residential is highly regulated whereas commercial can be like the wild west.

 

[BigEasy25]

I'm by no means an expert on this subject but I've been renovating my house recently and have learned a tremendous amount of info on building codes, plumbing, electrical, etc. I'm sure you learn a good bit of this in school but there is nothing like real life experiences. I think becoming a general contractor and rehabbing homes would be a good start.

 

[buckwild]

residential or commercial?

I ask because residential is highly regulated whereas commercial can be like the wild west.

Commercial for sure. As a kid I used to spend hours looking at my dad's architect magazines and admire the skyscrapers.

I'll do residential to build homes for the desperately poor. This is a good setup to follow. Frank McKinney | Caring House Project

 

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[Guest3722A]

From my experience which is closer to your choice "B" I myself have learned things by just by having the desire to make something happen, and getting out there and doing my best to make it happen. In my opinion, working for someone else can and will teach you as well as give you experience, but it is very time consuming whereas just "getting out there" and doing for yourself will also teach you things that you wouldn't have learned working for someone else's dream.

Anyway, commercial is where I have some experience based on my involvement with commercial mortgages and loans, as well as my last business which involved commercial development in pre-existing buildings, one in particular. I know pre-existing isn't quite what you were looking for, but doing what I did in order to get re-zoned and get an entire property up to the new use code was basically an entire change from what the property started as.

So if you're curious to learn the necessary steps that many business owners do on a daily basis, what I suggest is to visit city websites to learn about zoning, and the various code regulations required within each zone/city. I would even suggest going to your city's building department and talking with some inspectors and watch and learn what activities go on in there. It's a good way to learn.

In reference to your mentioning of getting a mortgage license for commercial, what I've learned from dealing directly with actual owners of private lending institutions from across the country is that these guys are going to protect their investments/loans no matter what so one of the first things on their list is the type of commercial property it is, and what it's use is. The types of commercial properties that would hold more value as far as what lending institutions would be more comfortable with would be properties like owner occupied mixed-use buildings/businesses where the owner would need to occupy more than 50% of the property. Lenders feel much more comfortable with lending to commercial real estate where the owner operates from. Gas stations, on the other hand, especially branded ones, are riskier to lenders and most commercial lenders would have more risk protections in place.

To learn more about commercial lending, websites like c-loans.com could be a good place to start.

 

[kingwizard]

Checked out this thread.

Real Estate Development

There may be some good info that may help you.


Kingwizard

 

[VideoComm]

Buckwild,

Get involved with a commercial real estate trade association.

There are two very good ones in the industry:
Urban Land Institute - headquartered in DC
NAIOP

Each of these organizations have discounted student memberships and local chapters. Start attending the meetings and become involved anyway you can. You will discover some great networking opportunities and have access to the leaders of that industry. If you show that you are knowledgeable and respectful, many of them are more than willing to share with you how they got started and what led to their success.

 

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[buckwild]

Buckwild,

Get involved with a commercial real estate trade association.

There are two very good ones in the industry:
Urban Land Institute - headquartered in DC
NAIOP

Each of these organizations have discounted student memberships and local chapters. Start attending the meetings and become involved anyway you can. You will discover some great networking opportunities and have access to the leaders of that industry. If you show that you are knowledgeable and respectful, many of them are more than willing to share with you how they got started and what led to their success.

Nice! I never knew they existed until now ++++SPEED. I will check them out, the meetings should make a good addition to the local REIA meetings I'm attending.

 

[CommonCents]

One area I might recommend looking into is aging/healthcare and the companies that focus on it for a job prospect/learning oppty. It's going to be a growth industry due to demographics. Senior living facilities, doc offices/professional buildings, emergency care etc...

 

[smith360]

Being part of the Real State Industry/Business returns your capital and gain reasonable profit.

 

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[ArnyHandelman]

to be a real estate developer, just do it

residential or commercial?

I ask because residential is highly regulated whereas commercial can be like the wild west.

when I was a kid, a lot of rich relatives were developers. I decided to become one too. But I got waylaid in the slow lane. I became a real estate lawyer first figuring that I could support my wife and daughter, get clients who were developers, learn from them, and then go out and do it myself. It was a mistake. I got caught up in the slow lane. I got waylaid into mortgage brokerage. Eventually, I left my practice with a partner, and then even split from him, and started developing. I bought new preconstruction houses and flipped them. I bought resale houses, renovated them and sold them fast. I had crews ready to paint and broadloom as soon as I got title. Then I bought a commercial property with a few stores and apts above. I syndicated it, pulling out cash and keeping one-third for free. I repeated this process. Then came my first multi-million dollar deal. It was 101,000 sq. ft of multiple industrial, fairly new and gorgeous. For $38 per foot. $3.8 million. I asked the city if it could be converted to industrial condo's. they said--yes, rubber stamp. so I put in an offer. I lost it to a higher offer. But they called me and said, we paid $3.9 million, wanna buy our offer? I checked around and found out that industrial condos like that were selling for $60-$65 per square foot. I was staring at a potential $2.5 million profit. I gave them $200,000 for their offer, so it cost me $4.1 million. There was a big first mortgage, and I needed $800K, which I didn't have. I divided it up into 9 shares, sold 4 at $100K each, and 4 at $125K each. I had $100K profit left for me, and I owned 1/9th ie 11% for free. After that, I went wild, buying multiple industrials and converting them to condo, and selling off units as tax shelters. I always felt like an outsider because I really didn't know anything about construction, renovation, or servicing land. I was a promoter. ONe more example--a guy I knew told me about 100 townhouse lots for sale in Niagara Falls. It was suposedly a bargain. I optioned 55 and 45. I got a price for a simple 1,100 sq ft 3 bdrm townhouse, all in turnkey, for $70K each including the land. I checked with realtors and learned that a townhouse like that (I got simple plans and a sketch) in that location was worth $90,000. That's $2million profit gross. I got a realtor team to blow out 45 of them, by agreeing to take a small down payment and carry a second mortgage. I waived the condition and then had him blow out the remaining 55. All were presold. I arranged hard money financing, and did the deal.
MJ is right. There's enough info out there to enable you to learn all you need to know about developing. Also, learn from pros out there: other builders and developers--ask them; from architects, engineers; municipal staff; realtors;mortgage guys. You need balls. Also, always add value. Look for hidden value. Like converting to condo; selling as a tax shelter so it's more valuable to the buyer; making it easier to buy with tiny down and carryback financing, so you get a higher price; chopping a big store into a few smaller stores so you get a higher per square foot rent; finding a loophole in the zoning that enables higher and better use. For example, lots of industrial zoning allows restaurants, motels, and strip bars. The right industrial lot or old building might be perfect as one or two restaurants, and the rent you can get will make it profitable. You can and must "pencil" out the deal on paper--do the numbers. If they show a huge profit, then go ahead because there will always be cost and time overruns. I suggest that if you don't have money, you take in one or more money partners after you can pencil it out and show them big profits. They can get interest on their money, and then you get 50%. It's like your own realty hedge fund. Watch securities laws; get a good development lawyer who acts for developers and can get variances from the city. That way you get away with less parking, or get permission for an extra apt. etc.
Get started. Don't do what I did, and go off on a tangent first through the slow lane. You could even put in conditional offers on commercial lots, then hunt for a commercial tenant. If they sign an offer to lease, and it pencils out, then you can waive your condition and go firm. It's easy to finance a deal if you have a good tenant on the hook to rent the space you're going to build. The sky is the limit.

 

[Chitown]

Arny,

Great post.

I have an opportunity to re-position an office property with a huge old theater on the ground level. I can convert the offices into loft apartments and lease the theater to a national concert promotion firm -- triple net -- while cutting myself in for some of those profits, as well.

The estate which controls the property is willing to carry back 50% of the paper at 6%. I know I can get it done at significantly less than replacement. The deal is a pocket listing brought to me by a commercial broker I asked to breakfast in order to introduce myself as a new investor/developer.

She agreed to work with me because she appreciates the fact that I know what I don't know and am not afraid to be counseled. In fact, I've had a tough time getting active developers to speak with me, so I will concentrate on building relationships with older and/or retired builders who'll view me as less of a threat.

You and MJ are both correct -- there is a ton of information out here that'll help you get started. I decided to forge ahead on my own, rather than work for a developer because there are plenty of opportunities around and lots of folks who'll work with you if they see you're serious about your business and their time. I've wasted months chasing after REO's and REO brokers who won't return calls.

My plan was to start commercial activities a couple of years from now, after I'd done some residential deals. Screw that, There is too much money to be made in the present.

++++Speed for a great post.

PS -- Any advice for acquiring property out of receivership? I'm seeing condo deals with plans/permits in place and unfinished multifamily in premium areas. Thanks, Arny

 

[akash001]

I ask because residential is highly regulated whereas commercial can be like the wild west.

 

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[wgayler]

One simple solution: Your young and just begining so find yourself a mentor locally that you would consider successful in the development side of the real estate business that would agree to share his/her wisdom and experience in exchange for X number of hours a week in pro bono servitude. Then make yourself indispensable.

 

[MNentre]

I speak from experience, and it has paid of very well so far, so listen up

PLAY THE STUDENT CARD. period. It is the easiest way to get in front of investors and big wigs at all of the local development companies- it helps even more if your school is their alma madder. Read bios on websites to see where they went, check the alumni directory, find something out about the person that connects you. If you find nothing, the student card works.

Last year, when i was getting my Undergrad I sent out 1 email a week to a "big time" real estate developer/owner. I have met with a University student housing developer with over 5000 units of MFH and a bunch of commercial, a guy that owns 250+ SFH and 1000 MF units, big commercial brokers, SFH rehabbers and everyone in between. And honestly, it took one well thought out email and an offer to buy them coffee or lunch at their convenience.

Give it a try, you'd be surprised. Unfortunately, as soon as you get out of school and try reaching out to them a lot of them will think you are trying to get something from them or sell them something. When you're a student, they don't expect that and they think you are just there to learn more about the business and how they got to where they are today.

 

[ArnyHandelman]

"Any advice for acquiring property out of receivership? I'm seeing condo deals with plans/permits in place and unfinished multifamily in premium areas." sorry I didn't get back sooner. There are extra potential problems buying out of receivership. They give no warranties. They sell "as is". Municipalities may require fresh new development agreements signed. New inspections and approvals may be necessary, especially because there may be damage from vandalism and the elements. So you might actually have to tear down some of the structure or work that's already been done and that you figured would decrease your cost to finish. Instead, it costs you more. Buying from a receiver may require an auction. I hate auctions. It may require Court approval, and then somebody comes along and challenges the Court order, so you're in limbo for months, or your offer is cancelled. Then you struggle to get your deposit back, and it usually has to be large substantial deposit. Even your offer often has to be unconditional, which means you're spending money on arranging financing, etc. before you even know if your deal will close. Get the idea? I don't like the deals. It's okay if you have a lot of money and lots of deals on the go. But if you're an aspiring newbie developer, I'd try to keep things as simple as possible. Nevertheless, if most of the units are pre-sold, and the agreements allow you as assignee by way of purchase from the Receiver, to force the buyers to close, and if their mortgage commitments are still in force and viable, then I'd give serious consideration. But again, you're doing a staggering amount of due diligence with lots of extra variables in the picture. That's why I'd pass.

 

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[ArnyHandelman]

"Whats the best path to becoming a real estate developer?" A lot depends on what your finances are like and whether you have a wife and child to support. If you do, then you have to take the safe way of having a job, for a salary, and then get into development on the side. It's tough timewise. The job should relate to development. I know of several young men who went to work for developers, mostly building tract houses, learned the ins and outs, working long hours, being early on construction sites etc. But they then left, struck out on their own, and became very successful. It's modelling successful techniques. Having a mentor is also good--very good. But I feel that the best way is to plunge in with action. You can learn or outsource or hire expertise. What you need is balls, determination, and an "eye" for potential. Study every real estate book you can get your hands on. Then go looking for opportunities--the anomaly, the run-down property; the extra uses available in the zoning permitted uses, so you can change the use to a higher and better one that will general more income. I know a guy who made a small fortune finishing basements in houses he bought,into basement apartments. He learned that the city bylaws allowed them provided they met certain minimum standards. He then turned around and sold them as "duplexes". People could buy and have a good income from the basement apartment to help carry the mortgage. So he could sell at a bigger markup than the cost of the basement fixup cost him, giving him very nice profits. Look to see what other's don't. I have always believed in being creative to liberate or create value that was hidden. Sometimes it's just realizing that the existing rent is way too low for the marketplace and knowing you can increase the rent when thelease is up in a few months. I'm doing a deal in which I will be able to sell the property for the same price I bought it for, and make a really nice profit. How? Because I will exclude from the sale price the huge signs on the roof. I get to keep the income forever. I'll have my lawyer draw up papers to effect this plan. It's $6,000. per annum that I'm keeping. At an 8% cap rate, it's worth $75,000. Not bad profit for a quick turn deal. Getting back, if you can put together a deal with a little deposit, show on paper why and how it will make money, you can get money partners to back you. So I would not learn to become a contractor. You hire them. You watch what they're doing, to ensure no short cuts, and so you'll know next time what to look for, but it's an outsource item. Even construction supervisor--contract it out. Don't spend 5 years of your life learning how to oversee andco-ordinate construction projects. The engineering backround is good because it teaches you to think logically, and because it gives you status with potential money partners. Wear your engineering ring always. Have a hard hat in your car. Maybe muddy boots too.
"only those who see the invisible can do the impossible." Be entrepreneurial, and you'll be able to hire engineers, architects, contractors, lawyers, salespeople, etc. To really speed things up, see if once you get your first deal lined up, if you can't get friends and relatives to back you with a mini-bankroll. It's for emergency cash, for walking-around money, and for deposits on offers. Don't have any moneyfor a deposit with an offer? Get a money partner who puts up the deposit earnest money. If the deal flies, he gets 100% profit on his money. ie if he puts $5,000. up, he gets $10,000. back when the property is sold. If the deal doesn't close, he gets the deposit back, and you pay him 12% apr on his money--1% per month. So for say, two months, it's $100. If you need it, you can get it. But since you need action, you can't get it--you have to do it. Think Nike--Just Do It.

 

[Leary]

Another great post, lots to think about.

 

[hatterasguy]

Wow great posts here. To elaborate on a point ArnyHandelman made that really stood out. You look for the anomaly.

When I look for a deal sometimes I will just drive down streets. I know my cities zoning laws so well that I can literally "see" them at work on every parcel I drive past. When I see one that doesn't make sense, or I think is being under utilized, that's an anomaly and a potential deal.

Something that I think every real estate developer has in common is they know their trade. They have knowledge of their local and state laws on par with a real estate attorney, and people on speed dial who can answer any question that they may not know in this area. A lot of people screw perfectly good deals up because they don't put the time in to really know the law.

Subs you can hire out, although I recommend not being totally clueless in this area. Finding and putting together profitable deals is where the real money is at. All you need is your local zoning book, a pen, and a cell phone.

 

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[mariareese]

Helping me out at some points .. thanku ..