10 Steps to Becoming a Successful Real Estate
Developer
Monday, November 27, 2006 @ 08:24 PM EST 
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Contributed by: Monica
Villasenor
1. Have enough money
This one I personally really messed up on. I wasn’t prepared for the length of
time that it would take to complete the development.
I barely could scrap enough money together to close the property and I didn’t
have enough to pay the architect, engineering, development
fees, and all the other costs that come with the development,
in addition to my living costs. I had to pull in more money investors and that
is costly as you will need to offer them a higher interest rate. It has been
extremely stressful as I’m not used to having to robbing Peter to pay Paul. I
have learned my lesson on this one.
2. Buy Right
You really make your money when you purchase the property. As good as you are
about calculating the costs of the project, there will be surprises. You may
have to pay more impact fees or bring buildings up to ADA compliance. You will not be able to
foresee every expense that will occur. Nor will you be able to control exactly
when the project will be completed. You will also not be able to foresee the
changes to the real estate market. If you don’t have enough margin between what
you bought the property for and the cost to develop it to still make a large
profit, you will not be a happy camper. You don’t want to put all of this time
and money into a project and two years later just break even or worse lose
money.
3. Start small to get experience.
You will make mistakes on every single property. You will hopefully learn from
those mistakes But when you are just beginning make the big mistakes on the
smaller developments. Once you have one or two developments under your belt
then move up. The developments that you do will not be identical. The process
will be. When you start with a smaller development,
you will be able to learn how to handle things that will come up. After a couple
of these projects are completed, a larger property won’t be so intimidating.
Remember, we all learn how to crawl before we learn how to walk. However, don’t
wait too long to move up to larger projects either.
4. Work with the city not against it.
When I decided to do the condo conversion project I was asked “Have you every
worked with the city before?”. When I answered “No”, then their response that
followed was generally, “There’s no way the city will allow you to do that”.
For some reason, the City of Redding
had a horrible reputation for being difficult to work with. I decided to not
form an opinion until I personally saw for myself if this was the case. I
decided that if they are difficult that I could go in there with a extremely
nice attitude. If it was true that they were difficult then I would hopefully
“kill them with kindness”. I never had the experience of finding the city
difficult to work with. I thought that my planner, Kent, went above and beyond his
duties and I honestly had a good experience.
Don’t go into the city with an attitude. The way you treat these people will
have a vast implication on how quickly your project goes through the system,
the cost, and if it will even get approved. Do not piss these people off! You
will be spending a lot of time with them and they can be your best friend or
kill your project. It’s up to you. Life is too short anyways. It’s just better
to treat people generously.
5. Get people who are local and knowledgeable.
Every local government works differently. You don’t have to have the experience
in that area, but you must find people who do. Try to find a surveyor who knows
what the city likes to see on the tentative map. Find an architect who knows
the type of styles of buildings that the city likes to see. The city may not
know you as a developer, but when they see familiar names on the paperwork in
the application, it is very helpful.
I found this very helpful in my condo conversion. I hired a lady named Karen as
the landscape architect. She had just retired after working for the City of Redding for many years.
To say that having her on our team was an advantage would be an understatement.
6. Know the laws (local and state)
Once again every city has their own local statues that may be stricter or more
lenient than you are used to. Additionally the state may have laws that must be
complied with that are different than other states.
For instance, California
is known for having extra laws and regulations that must be complied with. From
a developers point of view if you are used to developing
in California you would probably find developing
in other states a piece of cake. Once again, you personally don’t have to know
the laws, just have people on your team that do. Knowing laws though can be
helpful as ammunition if you need it.
For instance the State of California
implemented the SB 1818 which is the Density Bonus Act. It basically mandates
that local cities give concessions or density bonuses for the developers
allocated a certain percentage of the development
toward affordable housing. This is a newer law and if you as a developer know
about it and you need a concession or waiver, this may be helpful. Nobody is
going to search out this information but yourself.
7. Treat people with respect
You will realize that you will be managing a lot of people all at once.
Sometimes people act like they are back in high school. Your architect may piss
off your contractor and you will have to find a way to get issues resolved. The
best way is to treat people with respect. Barking out orders may make you feel
good, but I can guarantee that those people won’t respect you. I want to be
able to foster relationships as I want long term relationships to build. There
are tactful ways to handle almost any situation. I am not advocating being a
wuss. You are in charge. But show people respect, and you will receive it.
8. Be efficient
Time is money. If you are a procrastinator you will lose money every day that
the development
is not completed. You must be able to manage a large number of items, handled
by many different people. If this is not something that you would find yourself
able to handle, that’s okay. Just make sure that you have the money in your
budget to hire a project manager who can attend to the details that need to be
met.
9. Be honest
If you promised the city that you will do something, you better do it. Did you
promise the buyers something not in the stand package? If you said you would do
something you better do it. While cutting corners may save money on this development,
don’t think they will every trust you again. It’s just bad business. If some
expectation can’t be met, let them know and ask for suggestion on how they
would like you to remedy it. That way they will know that you are making the
effort to live by your word. Nothing is more valuable. Nobody wants to work
with a liar.
10. Be decisive
Nothing drives me more nutty than wishy washy people. Once the facts are there,
make a decision already. These kinds of projects are not for the type of people
who have trouble making quick decisions. Thousands of decisions will need to
be. How big will the lots be, what colors to paint the exteriors, the development’s
name, the price. I could go on and on. You will be the leader. Leaders make
decisions.
There is just so much involved in real estate development.
But what I really believe is that the success of a project is not so much the development
itself, rather the ability of the developer. It really is something that takes
a person who can handle mental stress, juggle multiple tasks, and make quick
decisions.
Note: Monica Villasenor is a real estate investor and developer. She
is currently converting a 24 unit apartment building to condos in Redding, CA.
See the website for more information at www.aboutmonacocondos.com
Email contact info:
info@aboutmonacocondos.com
