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Real Estate Developers

Real estate developers are those who transform a property in order to make it suitable for a new use. This can include developing raw land into a subdivision, rehabbing an old apartment building, designing and building an office complex, or converting a warehouse into multi-unit housing. Real estate developers are not necessarily builders, though they may also take on building projects. They are facilitators. They arrange financing, acquire the property, confer with architects, hire builders, and ultimately make a profit by placing their development on the market. Most people are familiar with subdivisions. This is where a real estate developer purchases a large tract of land and turns it into a residential neighborhood. The entire process is much more complicated than buying land and marking lots off with a can of spray paint.

The process begins long before the first bucketful of earth is moved. Real estate developers spend weeks or months looking for the right piece of property. Ideally, it will be large, flat, and have good access to available utilities. Once a property is located, it must be purchased. The developer wants to pay the least amount possible. Money is made when a property is bought, not sold. This step involves both negotiating with the current property owner and arranging financing with the bank or taking on partners to share the risk of the project. It is rare for real estate developers to fund an entire project out of pocket.

Once land has been acquired, the design phase begins. The developer will determine how they can best maximize their profits. This could be small eighth-of-an-acre garden home lots or large three-acre estate lots. It depends on the surrounding area and the market demand. Regardless of the size of the lots, the developer wants to maximize the amount of usable land.

At this point, access to utilities must be arranged. In a perfect world, the developer would be able to place a call to the local utility providers and request to tie in to the system. The utility companies would come out to the development and run their lines or pipes. This rarely happens. The developer is sometimes required to pay the cost of extending the company's existing infrastructure so their subdivision can be serviced. The developer might not be able to tie into an existing sewer system. They will have to build a septic system. This will require checking and conforming to local environmental restrictions.

For developments to be more than nice flat pieces of land, the real estate developers must build roads. Roads define a residential neighborhood. There are local zoning requirements that must be followed when constructing a road and building lots. Engineering studies must be performed. It might also be necessary to secure an easement to access the property.

Once the roads are completed, many real estate developers determine that the project is complete and begin selling lots off to builders. Others decide to continue the process and take on the builder role themselves. Even if they do not plan to build out the entire subdivision themselves, developers will build spec houses to attract builders into the subdivision. A development sells faster if there are houses on the lots.

The above is one example of a project a real estate developer might take on. Different development projects come with their own unique sets of challenges and opportunities, but the real estate developer's role is the same. They facilitate the transformation of a property into a new use and attempt to turn a profit.