What is a Developer in Real Estate? Property Developer Explains
Today, we’re going to answer the question of “what is a developer in real estate?”, so explain what a property developer is.
Here at Little Fish, we get all sorts of questions from clients and plain old curious folks alike.
We’re always happy to share our knowledge too, people just need to ask. For some examples of this, feel free to have a browse through our existing blog articles.
We’ll go through all the explanations of what a developer does, from the basic definitions through to site identification to networking and more.
So, if you’ve always wanted to know the answer to this question, read on to find out.
What is a Developer in Real Estate?
The straightforward definition of a developer is a person or company who takes a lot of land and builds new properties on it.
They could be a boutique property developer through to a large company who does massive-scale greenfield developments.
A property developer could build two subdivided units or townhomes on a residential block in an outer suburb through to multi-storey, mixed-use developments smack bang in the middle of the city.
Who Can Become a Developer?
In days gone past, real estate development was limited to wealthy people who had the working capital to acquire land and develop property on it.
This is no longer the case. More and more, we are seeing “mum and dad investors” and “armchair developers” emerge into the field.
For example, an older couple may own a large lot of land outright and feel like downsizing once their kids have left home. Subdividing their land and building two or more properties can be a great option.
They may choose to live in one house, sell another and rent out a third.
All of a sudden, a regular older couple has become a developer in real estate!
Ultimately, anyone can develop real estate for profit, so if you ever have to consider capital gains tax, don’t get scared get excited because it means that you are making money!
Is it Hard to Do?
Well, how long is a piece of string?
It all depends on the complexity of the project. For example, not just anyone can undertake a greenfield real estate development as this requires government involvement and large amounts of working capital.
So we’re going to focus the rest of the article on small-scale residential development, so you don’t get confused.
Even a smaller residential subdivision project has a lot of variables. You need to know every step of the way, have your figures airtight, and have your finger on the pulse of the whole project.
For someone brand new to this space, it is a lot to learn. If you’re willing to knuckle down and study, expand your knowledge and upskill rapidly, it is within the realms of possibility.
If you don’t have the time or inclination to do this, that’s fine. It doesn’t lock you out of the possibility of becoming a developer in real estate.
In this case you would engage a professional development management firm, like us here at Little Fish.
We step in, take over the process, and you stay as informed as much or as little as you like.
What are the Steps?
We’re going to detail the necessary steps below. There is more to it than this, but this is a start. If you have more questions after this, we’ll provide a number to get in touch with us at the end of the article.
Acquire Some Land
Well, the first step to becoming a developer in real estate is to acquire some land to build homes on.
Depending on your life stage, you might live on a suitable lot of land. If you don’t, you need to look for a suitable piece of land.
A tip here is to look for a dilapidated property in a sought-after suburb.
A house that is so run down that owner-occupiers looking for a place to do up will be turned off because it’s too much work.
Sort Your Finance
Even if you own a suitable lot of land outright, chances are you probably won’t have enough capital to fund a project outright.
Even a small-scale residential build costs money to undertake, and every day has a dollar value attached. Chances are you’ll need to scope out some lenders.
It’s worth knowing the process for this. Lenders are cagier than they used to be, due to the fallout of the banking royal commission.
So be prepared for paperwork and waiting. You’ll also need to get used to the idea of a higher interest rate than if you were purchasing an existing investment property.
Also, no lender is going to cough up the full amount needed to acquire land and to fund a whole project. Usually, they will lend around 70% of each.
This means you need a deposit of 30% for the land, and 30% for the construction.
You may need to consider leveraging existing assets like property as equity. And you need to be informed of the risks involved in this.
Property development, while having the potential to be lucrative, is a risk like any form of investment.
Surveyor and Architect
After you’ve found a suitable lot of land and have acquired appropriate finance, you’ll need to hire a land surveyor.
They need to undertake what is termed a “re-establishment survey” and a “features and levels survey”. These need to occur before an architect can begin designing your properties.
You cannot skip this step; it is vital to the process.
Your choice of architect is an important decision too. You need someone who gets your vision and is willing to put in the hard yards to make it work.
You need to bring something to the table too, by bombarding them with ideas, inspiration and examples.
Don’t forget to take into account the character of the suburb you are developing in though. This is, so you fly through the town planning process.
Once you have your design, you need to apply for all the necessary permits at the local council.
We’re not going to lie – you will wait, and they’ll likely come back with requests for more information. Get back to them quickly, and you’ll see your project moving.
Construction Documents and the Build Phase
The next step is to sort all your construction documentation before you break soil.
Once a builder is appointed, you can start work, how exciting!
One word on subdivision builders though. Even if they are fantastic at their job, they love variations. Variations mean changes to their contract and means they can bill you for more work.
Have an airtight contract that is strict on the chances of variations. You may wish to engage a lawyer to review the contract.
Sell Off the Plan
The final step is to begin marketing the homes before the build is finishing. This is referred to as selling off the plan and is the way to go because you will see profits sooner than if sold once completed.
Want to Know More?
By now, you should know precisely what is a developer in real estate.
To become one, or to learn more, call Little Fish on 1300 799 277 for a free, no-obligation initial discussion.