Real Estate 101: Real Estate Development Done Right

Real Estate 101: Real Estate Development Done Right

The real estate industry isn’t easy for outsiders to understand. Some people consider it too complicated to even bother trying to understand it, but that’s true of countless white-collar professions. In truth, real estate can be accessible to anyone willing to accept a learning curve. Fortunately, there’s no shortage of industry professionals willing to share guidance.

Karen Margrave at BiggerPockets is one such individual who highlighted five tips for completing your first development deal. “Being licensed in real estate and construction gave [her] a good foundation for development,” she explains at the outset. “Aside from that, knowing the local market and economy helped tremendously.” That should make intuitive sense to readers — knowledge is power. Additional takeaways include everything from cost-effective construction and the power of relationships to marketing the project and knowing when to use a designer or an architect.

Ian Formigle at Crowdstreet echoed Karen’s pointers in his own comprehensive guide to the real estate development process. “Real estate development is a multistep process that can be complicated, lengthy, and risky,” according to him, but that shouldn’t stop anyone from making the attempt. Ian then broke the process down into three distinct stages: (i) early-stage/pre-development, (ii) middle-stage/construction, and (iii) final stage/operation. Readers should immediately begin to appreciate how intricate and complicated things become.

The pre-development stage is an illustrative case in point. Real estate professionals have to consider market analysis, feasibility studies, environmental assessments, site plans, permitting, etc. Those activities frequently depend on other stakeholders, which can make time frames rather unpredictable. Worse still is the fact that any of the activities could also produce unfavorable outcomes that undermine the overall development plan. For instance, an environmental assessment might conclude that a given location was unacceptable for its originally intended use.

Avoiding unexpected setbacks requires a prudent mindset and a willingness to go above and beyond. That’s the sentiment conveyed by contributors at the Forbes Real Estate Council. They shared 13 tips that supposedly improve real estate performance. Consulting seasoned experts and relevant industry reports are the first two recommendations. The authors also stress the importance of sticking to the initial investment plan, checking the news and social media, and keeping an eye on inventory. Some of the prescriptions offered might prove less useful than other depending on the circumstance. Experimentation is the only way to deduce which ones could inform decision-making.

Suffice it to say that real estate development is no trivial undertaking. The learning curve is steep for almost everyone as a beginner. That’s also why some industry professionals don’t necessarily recommend starting from scratch. Look no further than Forbes, which publicized a Quora answer describing what it takes to start a hotel. The original author, Michael Forrest Jones, explained that it is sometimes easier to take responsibility for an existing property rather than developing a brand new one. That strategy not only mitigates some degree of the upfront risk, it also allows cash flow to begin on the first day.

A real estate professional interested in entering the tourism market could be targeting Australia, for instance. The Australian Department of Foreign Affairs and Trade released a report last year indicating accelerated growth in tourism. In other words, there’s plenty of opportunity for commercial real estate. In this particular scenario, it would probably be much simpler to investigate management rights for sale instead of developing a new property and having to progress through the hurdles outlined earlier by Ian. Successfully managing that first property could eventually enable future property growth in the form of renovations or something completely novel.

None of the direction proposed by the aforementioned authors should be taken as any kind of guarantee. There are no secret recipes or shortcuts to success and every real estate market is unique. This is all to reinforce the fact that real estate development is a viable path for those willing to rise to the challenge. More importantly, they should understand that there’s more than one way to get started.