The Difference Between Real Estate and Real Estate Development

Jared Eigerman

July 15, 2022

Real Estate

There are a number of key differences between real estate development. A developer will study the market to determine what people want and then design a building project to meet those needs. They may require the permission of the local government to break ground and construct a building from scratch or remodel an existing one. Real estate developers usually sell their properties within 24 to 36 months. While real estate development can be a lucrative business, it can be expensive and it is often perceived as a wealthy profession.

Real estate development

Real estate development is the process of changing the built environment to meet varying social needs. It involves constructing, renovating, and rearranging a place to meet the needs of its users. It may involve the construction of roads, sewer systems, houses, or office buildings. Development also involves social needs such as environmental issues. To be successful in real estate development, it is important to understand the process’ stages and avoid making mistakes.

Developers usually invest some of their own money in a project, though the bulk of the money comes from commercial loans. The rest comes from investors such as real estate investment trusts, private equity firms, and pension funds. Often, developers must establish relationships with a variety of investors in order to gain access to funds to complete their projects. Development involves building a portfolio of previous successful projects to attract investors.

Construction of buildings

The process of developing a building begins with the pre-development phase. This involves brainstorming funding sources, including private equity, public investment, and bank loans. Developers analyze the projected revenue from the building, determining if the income will cover operational costs, debt service, and returns to investors. The Pre-Development phase often overlaps with the Design phase and includes dealing with issues relating to zoning and local jurisdiction permitting.

Planning the construction phase is vital. It involves identifying project goals, determining the project team’s roles, and estimating the costs. It also involves working with engineers, architects, and general contractors to plan and construct the building. Construction insurance is essential, and environmental, land use, and local counsel will be key in working with the city officials to ensure the building meets all local regulations. The entire construction process is subject to a number of different risks, so proper planning is critical.

Purchase of land

Purchasing land as part of real estate development involves a number of tasks. Before you can buy any property, you must first determine if the property meets all requirements. Many factors can affect the value of a property. Some factors, such as soil conditions, can make it impossible to build a home or dig a well. Others, such as liens or environmental concerns, may prevent you from developing the land properly. However, the following tips can help you make an informed decision.

Before purchasing a plot of land, you need to determine what its potential uses are. This is determined by local, state, or federal zoning ordinances. Some land can only be used for residential properties, while others may only be used for commercial purposes. To determine whether the property is suited for development, you must also know how local officials determine the value of a parcel. If you can’t identify the intended use for the property, it may not be worth investing in the property.

Financing of projects

Different stages of real estate development project require different types of funding. For example, site selection and land acquisition are typically funded with equity from the sponsor. However, because site selection and land acquisition are such high-risk activities, senior debt sources often require a financial buy-in from the developer. Nevertheless, short-term loans may be the most suitable option for developers with good credit scores. However, short-term financing may not be feasible if the project has already begun.

The first step in the decision-making process is an introductory meeting with a bank’s representative. This meeting enables the investor to discuss their plans and provide preliminary information. The bank should be ready to listen to the details of the project and respond to any changes that may occur. Ineffective collaboration between investors and financial partners can negatively affect the execution of the project. It is therefore important for the investor to carefully evaluate the project’s financial and credit conditions and analyze the policy of the bank.

Investment opportunities

There are a number of ways to get involve in real estate development and investment. These opportunities are not for everyone, and you should understand the risks and reward structure before investing. Many of these opportunities are illiquid and speculative. You should contact a licensed investment professional for advice. You should also understand how crowdfunding works before deciding if investing in a particular opportunity is right for you. Once you are familiar with how crowdfunding works, you can invest in real estate development opportunities.

One way to invest in real estate development is to invest in a property you know a lot about. Once you have a good idea of what you are doing, you can wire the money to developers. This way, you can watch the decisions that are making and the cash that on the project. If you are able to find a developer who knows a lot of people in the industry, you can use their connections to your benefit.