How to become a property developer? In 10 easy steps

Property development requires entrepreneurs i.e. the property developers who must be ready to put their skills to test and make hard and swift decisions.

With no barriers to entry, property development is now accessible to everyone, mums and dads and property investors who can use property development as part of their property investment strategy to exponentially grow their property portfolios.

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What Does A property Developer Do?

What Does A Real Estate Developer Do?

Real estate developers are like symphony orchestra conductors who unlock hidden profits in sites (land) through their effort, vision & entrepreneurship... bringing together the individual instrumental parts of real estate development to create a new symphony.

A real estate developer or property developer is an entrepreneur because they combine the skills and resources, i.e. land, finance and labour to create a finished product whose value is greater than the sum of all input costs. A property developer will take the risk by getting into the project (business venture) with an expectation to achieve an economic return that adequately rewards them for taking the risk.

So to become a property developer, you must understand the overall picture of what needs to happen as well as when and what you have to be careful of, i.e. have a thorough understanding of the property development process. You need to understand how everything comes together to profit from your business venture.

What strategies to use and when? When to get a development approval or planning permit and flip & exit, how to control the property without ever owning it and when it is beneficial to go all the way and get your development built and then cash out. A property developer must then be able to make the right decisions based on all this information, due diligence and financial feasibility.

What Qualifications Are Required To Become A Property Developer?

Property developers or real estate developer come from varied backgrounds in terms of education and industry. There have been property developers with no education at all who have done well. And there have been property developers with all the relevant degrees who have failed. What separates the failed property developers from the successful ones are their entrepreneurial qualities & their level of education.

Does A Property Developer Also Need To Be A Builder?

There is no rule mandating that a property developer must be a building contractor as well. A property developer does not have to be an architect, building or land surveyor, construction contractor or builder, a quantity surveyor, a geotechnical expert etc. or an economist. I haven't heard of rich economists, architects or builders as much as I have heard of wealthy property developers. Having a background in any of these professions is a plus, but not necessary.

How To become a developer real estate?

To become a successful property developer or to be a successful property developer you must have the following:

• Property Developer’s mindset - You must be driven, in terms of your desire to achieve your financial goals, troubleshoot problems and have an obsession to keep going forward. This becomes a lot easier if you really enjoy property development. Because, property development is full of challenges and problems that need to be resolved and or contained. If you don't really enjoy what you do, inevitably you will not last very long in this industry.
• Life Long Learner - Irrespective of your educational qualifications & experience, you must be willing to learn everything about property development. This education will never stop as property development requires and involves many disciplines, so chances are that you will come across something new in every development project.
• You must have the right Property Development Team for the kind of project your are undertaking. You don’t have to have the most expensive consultants, you just have to have the right consultants and professionals for the size of your project.
• A Property Developer needs to understand all facets of the property development process. From conducting property development feasibility, determining the highest best possible use of the site to identify profitable opportunities. Understand the property market cycles, conduct market research & due diligence, to engaging the property development team and orchestrating & facilitating the entire development process from inception to delivery.
  
  Before you enter into the realm of property development, I strongly recommend that you assemble a team of property experts and knowledgeable consultants.

Why Do I Need A Property Development Team?

Property development is complicated and covers multiple disciplines. You can’t possibly have all the knowledge yourself. Even after you have become an experienced property developer, you will still rely on the skills and knowledge of qualified and experienced property development consultants.

Who Should I Include In My Property Development Team?

As a bare minimum, your property development team will include the following consultants and professionals:

• Accountant
• Finance Broker
• Land Surveyor
• Architect
• Structural Engineer
• Quantity Surveyor
• Civil Engineer
• Mechanical Engineer
• Geotechnical Engineer
• Building Surveyor etc. to name a few.

How Do Property Developers Make Money?

Other Similar Questions answered in this post:

• How do real estate developers make money?

Property developers make a margin on the cost of the development called the Development Margin. It is no different than a manufacturer making a margin on the cost of producing “xyz” product. The Total Development Costs (TDCT) include the land, government taxes like stamp duty, GST or VAT as well as development and construction costs.

When the developed units, townhouses or apartments are sold, all costs are deducted from total sales or the GRV (Gross Realisation Value) and what is left is the property development profit. Property development profit can then be expressed in a percentage, which is the Development Margin.

Typically for small to medium size developments the property development profit can range from $30,000 to $200,000 per unit. In the example below, the per unit profit is $100,451.40 with a development margin of 18.4%

How Much Money Can You Make From Property Development?

How Much Does A Property Developer earn?

The amount of money a property developer can earn varies depending on the size of the development. Your earnings as a property developer will vary based on the project profit. Smaller projects can return about $100,000 in 12 months and larger projects don’t have a ceiling. Every property development project is different. In fact, the financial feasibility that you start off with will rarely be exactly the same at the end of the project. The amount of money that you can make from a project is not always the correct measure of a successful property development project. 

Unless you are a development manager working for a company for a wage, which can range anywhere from $80,000-$150,000 depending upon your experience.

How much money do real estate developers make?

The amount of money real estate developers can make depends on 3 things:

1) What Real Estate Developers can charge the project as a development management fee?

Real estate developers, also known as General Partners or GP would normally charge a development management fee to the project for managing the project.

2) Project Performance Based incentive

Often general partners, GP or real estate developers will also be paid based on the project performance based on IRR hurdles, minimum desired returns for investors, cash on cash return or a combination of both.

3) Property Development Profit

Depending upon the equity held by real estate developers, they will also be entitled to a share of the project based on the percentage of equity held by them in he project. If the project is owned by them 100%, then the entire project profit is for them to keep.

Property Development: Measures Of Success

There are two main measures of success. The first one is Development Margin and you should strive to make sure that your projects makes a minimum of 10% development margin on cost. The second measure is Return on Equity (ROE) or Cash on Cash Return (COC).

This is the amount of profit you make the money that you invest from your pocket. This does not include the money that you borrow from the bank. As a thumb rule, I never take on projects with less than 20% ROE.

This is the reason, that in order to become a property developer, you need to understand the property development feasibility study as well as the sensitivity analysis. Continuing with the example from the image above, below is the Sensitivity analysis that both my property development feasibility softwares and training courses include.

In the above example, if everything goes right the project makes $100,451 per unit as development profit, 18% as Development Margin and the Return on Equity will be 45% or 61% depending upon whether the LVR or LTV (Loan to Value Ratio) was against the Total Development Costs or Gross Realisation Value.

This means, that you managed to borrow more money and your maximum loan was determined against GRV your ROE will be 61% and if you were allowed a lower maximum lend, i.e. your LVR was determined against TDC, your ROE will be 45%.

You will be make 61% return on your money if you borrow against GRV and 45% return on your money if you borrow against TDC. The sensitivity table below shows how your profitability, development margin and return on equity will be impacted if your Sales and Costs were to fluctuate in 5% and 3% slabs.

How Much Does A Property Developer Earn A Year?

Other Similar Questions answered in this post:

• How much do property developers make?
• How much do property developers earn?
• How much money do property developers make?
• How much money does a property developer make?
• How much does a property developer earn a year?
• How much profit do property developers make?
• How property developers make money?

A good property developer can earn anywhere between $80,000 - $200,000 per annum doing smaller townhouse developments. If you are looking to for a career change and are looking to replace your income doing property development project part-time, you should get my Property Development System that not only shows you how I did it starting from zero, but also gives you a system that you can follow.

How to Become A Property Developer With no Money?

I discuss the answer to this question in detail in one of my other articles Property Development With No Money & through my extensive property development course "How To Become A Property Developer With no Money?"

How Do I Get Into Property Development?

If someone ever asked me what is that “One thing” that has helped me become successful Property Developer, I would say it’s my property development mindset.

Property Development is the most lucrative and the fastest way to generate equity that I know. I have been to many seminars and completed various property development courses, studied many different property investment strategies & even obtained diplomas in the field of property. If there is that one strategy that gets me results, the quickest, it has to be Property Development.

However, because of its very nature, it requires a very strong mindset. Because it is full of problem solving, trouble shooting and managing risks. However, I can guarantee you that if you have the right mindset, you will be very successful in this industry.

If you already have the right mindset there is a very good chance, you may be underestimating the power it can bring to the table or the level at which it is required in property development.

Let’s find out whether or not you have the right mindset for property development. Ask yourself if you suffer from the following:

How To Become A Successful Property Developer?

• You must have a Predictable System in place that you can follow, over and over again without thinking.
• You have to be willing to push through your comfort zone.
• You can never allow your “self-doubt” to stop you from achieving what you truly deserve.
• And you need to play the game to win. Are you playing the game to win or are you playing the game, so you don’t lose?

In property development, there are winners and there are losers and then there are people who haven’t learned how to win yet. All they need is the right system, the right course in property development for them to move forward. However, no amount of property development courses can help you, if you don’t have the right mindset.

There is an old African proverb, “if there is no enemy within, the enemy outside can do you no harm”.

So if you know that you have the right mindset, if you think you are ready to take the leap from being a property investor to a property developer, if you think that you are ready to learn the property development process and the strategies involved, then it’s time for you to move forward and take the next step.

This means that you have the first “HOW” of How to get into property development. You start with working on your mind, you spend time listening to audiobooks or mindset programs, whatever rocks your boat and when you are faced with challenges, you push through them, you create a big enough WHY i.e. all the reasons of why you want to get into property development.

How To Find Your First Property Development Project?

I get a lot of emails everyday and from experience I can conclude that the one thing every developer absolutely must master is, their ability to find lucrative property development deals on a consistent basis. This is the number 1 skill that you need in order to stay ahead of the competition.

And if you haven’t got it packaged into a system that you can follow every time, you will either get frustrated, because you will spend numerous hours looking for deals that don’t stack or you will end up paying too much for the site and shoot yourself in the foot.

This is a very important video for anyone starting out in property development and you must pay attention if you would like to become a master at finding deals.

Because Bad Deals = No Profit

Property Development Mistake 1:
Following The Heard

Have you ever noticed a newbie say, “Everyone is developing here, so should I”. Or “Everyone is buying here and so should I”. That’s how novice property developers make decisions. It’s the heard mentality and it only works in the short term, only for as long as the property market is in an upward trend. This approach, however does not work over a long period of time or in other words, if you wish to be able to continually keep developing as your source of income, you need to take this to the next level and have a system behind it.

If you don’t have a replicable system behind your systematic property research, you will never know where to start in property development.

Why do you plan on developing in Melbourne, Sydney or Brisbane and why aren’t you developing in Perth, Adelaide and so on. The answer to this question shouldn’t simply be, “because I live here”.

For example, I am from Melbourne, however, my first development was in Brisbane and it was based purely on my market research and nothing else.

You have to dig deep on the macro level, chose the state first, then zoom in further to suburb level, and then finally to street level. Most, novice developers cannot back their answers with market research and facts. And over the years in my property development career, the more I have based my decisions on research and numbers, the more successful my projects have been and the more detached I have been from the projects I undertook. So everything I did during the project contributed straight towards the bottom line of the project.

Property Development Mistake 2:
Listening To Negative Media

The second mistake, novice developers make, when getting into property development, is to listen to negative media. There are two things that you must always remember, 1st only “Bad news sells” – so everyone talks down the property market. 2nd you must not pay attention to the news sites who hire content writers to spin negative stories.

Their job is to amplify the negativity. Because, I assume, you are going to be into property development for a long time, you need to have a property research system that you can fall back on to so you are making decision based on facts not just negative media.

Property Development Mistake 3:
Blindly Believing The Economists

• Have you ever seen a rich Economist? – I haven’t, & I don’t think they even fall in the top 100 disciplines that make people rich.
• Have you seen a rich property developer? I am sure you have and I am pretty sure I have too. 

Here are two more articles that I would recommend that you read:

• 7 Common Mistakes Made by Property Developers
• 5 Reasons Buy and Hold Property Investors FAIL at Property Development

So What Is It That The Property Developer Knows That An Economist Doesn’t?

Property developers know the rules of property development and property economics and take action by following a replicable system of research and property development. They do their research and understand the difference between the demand and supply of various suburbs. They understand the various factors that play a role in determining house prices. They know exactly where to start and they maximise their up side and cover their downside.

To be exact, they have a working knowledge of Property Economics. In a nutshell, they understand that a deal is a deal – no matter where it is, what suburb it is in. If it stacks up, it stacks up.

They understand the important concepts that you need to understand in order to find your first lucrative property development project.

So before you get into property development, here is what you need to get proficient in. Don’t worry, if you don’t know what these are or how they work, check out one of my property development courses to get started in property development.

Property Economics For Property Developers

Property Economics – A working understanding of New Govt Policies, Unemployment Rate, Impact of Interest & inflation rate, population growth, house price index, Australian dollar and the over all state of the economy are essential for any property developer starting out.

Property clock & market cycles – an understanding of property clock and the ability to read signals for Maturity, Decline, Bottom & Recovery

Listening for Signals – The ability to separate the Gossip & the Hype from what exactly is happening in the market, is another important skills every novice starting out in property must understand. Another complimentary skills required to efficiently listen for signals involves, leveraging the internet to hear for side kicks and other important announcements that impact property prices.

Understanding Statistics – new developers do not need to be statisticians to read market signals, but they must understand the 8 most important stats to get the pulse of the market.

Understanding Capital Growth – An understanding of capital growth, how it impacts property prices, how it is related to other forces in the market helps in identifying Suburbs with greatest growth potential. There are 6 important metrics that determine a capital growth trend. An understanding of these metrics will help you with suburb selection.

Demographics - Why do people move and how to find out where are they moving now is a very important insight for any property developer. Understanding, this not only helps developers refine what they are you going to develop, but also determine the expected demand for a certain kind of design. And the ability to forecast demographic movement sets them apart from “wanna be” property developers.

Validating Signals – know all of the above signals is not enough. The ability for novice developers to find proof for market indicators is another important skill that you need to know before starting out in property development.

Auto Alerts – And on top of all of the above, automating the entire process using web and technology will give you an edge over any developer in the market.

Here Is What Is Important For Any Newbie To Get Into Property Development:

1. Do not base your development decisions on what every one else is doing. i.e. do not follow the heard.
2. Do not listen to negative media.
3. Do not blindly believe what the economists say, always do you your own research and find data to determine whether it applies to your particular suburb.

Invest time to understand the following important concepts and develop a property development research system:

1. Property Economics
2. Property clock & market cycles
3. Listening for Market Signals
4. Understanding Statistics
5. Understanding Capital Growth
6. Demographics
7. Validate the signals you are getting
8. Automate the entire process using web and technology.

Getting started in property development requires a lot of things, Due Diligence is one of the most important skills that you need, when you are embarking on your property development journey.