Do you want to start a real estate development business? If YES, here is a detailed guide on how to start a real estate development business with NO money and no experience plus a sample real estate development business plan template.
If you are an investor or an aspiring entrepreneur with a real estate background and you are looking towards starting a business in the united states, you should know that there is hardly any industry that you will pitch your business tent in that you won’t reap good returns from your investment.
If you decide to start a real estate development business, you are sure of making huge returns from it because there are loads of families, individuals and businesses looking for property to buy, lease or rent throughout the United States.
If you want to partake in this thriving industry, then you need to obtain the necessary licenses and permits. Although there are competitions at various levels in the industry, but if you are able to come up with a good business strategy, then you are sure of getting a good share of the market.
So, if you have decided to start a real estate development company, then you should make sure that you carry out thorough feasibility studies and also market survey. This will enable you locate the business in a community or city with the right demography; a location that can readily accept your business offerings.
If you are interested in starting a real estate development company in the United States of America, then you should read through this article in order to get the required information.
20 Steps to Starting a Real Estate Development Business
1. Understand the Industry
The property development industry is categorized into the real estate sector and it is a very large industry that has the potential to make entrepreneurs millionaires. The property development industry is a many-sided business that covers activities ranging from acquiring raw land to selling or renting or leasing of fully finished and furnished properties.
In essence, developers are responsible for turning ideas into real properties; i.e. they acquire land, finance real estate deals, engage in building projects and sell, rent, lease and manage properties on behalf of their clients.
One of the most profitable, creative and interesting aspect of the real estate industry is property development. As a matter of fact, developers are major players when it comes to determining the prices of properties. Although a Real Estate Development Business can be risky, but in other to make it big in the industry as a property developer, you just have to take calculated risks.
Just like all other investment vehicles, there are potential downsides you need to look out for as a property developer. One of the major risks in property development is a sudden downturn in the economy. Property development could take a period of two to three years from conception to completion depending on the size of the project and the cash flow.
As a matter of fact, some projects can even take longer than that. Because of the time frame involved in developing properties, loads of unanticipated things could crop up which is not good for the business considering the investment that has gone into the project.
Another factor that is of major concern in the property development business is cost increase as a result of inflation, currency devaluation and economic challenges. Unforeseen delays from the part of government agencies, litigation and also delays from contractors could lead to substantial cost increase especially if the project is heavily dependent on bank loans.
If perhaps during this period there is a change in the supply and demand dynamics of the property sector, the project could be affected negatively. As a property developer, it is very important to be creative, to be able to use your ideas to meet the rapidly changing needs of the society when it comes to properties.
The property development sector is known to be a major contributor in the economy of many nations of the world and the industry is notable for producing some of the richest men in the world and you can become one of them if you are ready to pay the price.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who do business with real estate development companies cut across individuals and businesses. The truth is that when it comes to purchasing, leasing or renting properties, there is indeed a wide range of available customers. In essence, your target market can’t be restricted to just households within your location, but all the businesses in and around the city where you have your business presence.
3. Decide Which Niche to Concentrate On
It is safe to say that there is no niche area in the real estate development line of business, every player in the industry engage in acquiring, constructing, remodeling and renovating the interiors and exterior of residential buildings (i.e. single-family homes and multifamily apartment building units) and then put them up for sale.
So, if you are looking towards starting your own real estate development business, then you should clearly define your market so that you will know how to get to them. On the other hand, a real estate development company may decide to major in any of the under listed;
- Retail Real Estate Development
- Commercial Office Real Estate Developers
- Residential Construction
- Investment Properties
- Mortgage REITs
- Hybrid REITs
The Level of Competition in the Industry
The competition that exists in the line of business goes beyond competitions amongst real estate development businesses in your location; you are expected to compete with other businesses in the real estate industry who are also into property purchasing and selling. So, it will be right to say the competition in the real estate development line of business is tough.
The truth is that no matter the level of competition in an industry, if you have done your due diligence and you brand and promote your services or business properly, you will always make headway in the industry. Just ensure that you invest in attractive properties, you can deliver excellent customer care services and you know how to attract and reach out to your target market.
4. Know Your Major Competitors in the Industry
In every industry, there are always brands that perform better or are better regarded by customers and general public than others. Some of these brands have been in the industry for a long time, while others are best known for how they conduct their businesses and the results they have achieved over the years. These are some of the leading real estate development companies in the United States of America and in the globe;
- AvalonBay Communities
- Greystar Real Estate Partners
- Wood Partners
- Mill Creek Residential
- Continental Properties Company, Inc.
- Trammell Crow Company
- The JBG Companies
- Lowe Enterprises
- Simon Property Group
- General Growth Properties
- SITE Centers
- Kimco Realty Corp
- Brixmor Property Group
- Panattoni Development Co.
- McDonald Development Co.
- USAA Real Estate Co.
- LaSalle Investment Management
- Gibraltar Syndication & Development Company
Economic Analysis
If you are planning towards successfully launching a business and maximizing profits, then you need to ensure that you get your economic and cost analysis right and try as much as possible to adopt international best practices in the chosen industry.
Real estate development business is not a Green business, as a matter of fact; you will come across several real estate development companies and other players in the real estate industry when you drive through town, search through directories and browse through the internet.
So, if you are mapping out your economic and cost analysis, you should carry out thorough market survey to know the amount needed to rent a space where you are expected to open your real estate development business and equally the running cost of the business.
Again, your concern should not be limited to the cost of renting an office space and securing the working capital, but also on branding and on how to build a robust clientele base. The truth is that if you are able to build a robust clientele base, you are sure going to maximize profits in the business.
5. Decide Whether to Buy a Franchise or Start from Scratch
If you are looking towards starting a real estate development company, you would have to start from the very scratch because you can hardly get the franchise of a real estate development company to buy. Besides starting a real estate development company from the scratch is less stressful when compared to other related businesses which usually requires detailed groundwork and extensive paper work before launching the business.
With real estate development company, you should just try as much as possible to get the right employees, build business relationship with key stakeholders and investors and then leverage on every marketing tool within your disposal to market your properties.
Please note that most of the successful real estate development companies around started from the scratch and they were able to build a solid business brand. It takes dedication, hard work and determination to achieve business success.
6. Know the Possible Threats and Challenges You Will Face
An increase in corporate profit generally leads to higher business confidence, which bolsters demand for property. With wider profit margins, businesses typically expand to new locations, entailing the leasing or construction of new properties or facilities.
As business investments in real estate grow, demand for agents and brokers that service the commercial sector also increases. Corporate profit is expected to increase in 2019, but at a slower rate than the previous year, posing a potential threat to the industry.
Some other challenges and threats that you are likely going to face are economic downturn and unfavorable government. There is nothing you can do as regards these threats and challenges other than to stay positive that things will work well for you.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
When considering starting a real estate development company, the legal entity you choose will go a long way to determine how big the business can grow; some real estate development companies design their business for neighborhood market, some for city wide market, while others for the national market via franchising. You can choose a general partnership, or limited liability company for your real estate development business.
Setting up an LLC protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the limited liability company that will be at risk. It is not so for sole proprietorships and general partnerships. Limited liability companies are simpler and more flexible to operate and you don’t need a board of directors, shareholder meetings and other managerial formalities.
These are some of the factors you should consider before choosing a legal entity for your real estate development business; limitation of personal liability, ease of transferability, admission of new owners and investors’ expectation and of course taxes.
If you take your time to study the various legal entities to use for your real estate development business with the ability to sell franchise, you will agree that limited liability company; an LLC is most suitable. You can start Real Estate Development Business as limited liability company (LLC) and in future convert it to a ‘C’ corporation or an ‘S’ corporation especially when you have the plans of going public.
Upgrading to a ‘C’ corporation or ‘S’ corporation will give you the opportunity to grow your real estate development business so as to compete with major players in the industry; you will be able to generate capital from venture capital firms, you will enjoy separate tax structure, and you can easily transfer ownership of the company
8. Choose a Catchy Business Name
When it comes to choosing a name for your business, you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents. If you are considering starting your own real estate development business, here are some catchy names that you can choose from;
- Roof Top® Real Estate Development Company
- Presley Wheat® Real Estate Developers, LLC
- TY Marriot© Real Estate Developers, Inc.
- Kings Court® Real Estate Development Company, Inc.
- Great Tower™ Real Estate Development Company, Inc.
- Barry Baxter & Co™ Real Estate Development Company, Inc.
- Jasper Krieger© Real Estate Development Company, Inc.
- East Coast® Real Estate Development Company, LLC
- Vintage Group© Real Estate Development Company, Inc.
- Lawson Jason & Sons© Real Estate Development Company, Inc.
9. Discuss with an Agent to Know the Best Insurance Policies for You
It will be a grave mistake not to buy the needed insurance policy cover for your business. As a matter of fact, in the United States, you cannot legally run a business without buying insurance policy cover. With the right insurance policy cover, you can be rest assured that your business will be protected when the unforeseen happens.
The truth is that if you don’t have the right insurance policy in place and things go wrong, it can threaten the existence of your business and your business can go bankrupt. In the United States, there are quite a number of important insurance policy covers that every business owner should consider buying and they include;
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Public Liability Insurance (PLI)
PLI protects businesses against losses suffered by people or customers injuring themselves or sustaining property damage due to the activities of business, it is one of the most common types of small business insurance. It is of particular importance if you operate a physical premises and regularly interact with customers in a third party or business owned premise.
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Professional Indemnity Insurance (PII)
PII is for businesses and professionals that provide advice or services to customers. It protects your business against any claims for damages or legal costs which arise due to omission or breach of professional duty in the daily course of operation. It actively protects your business if advice or a service provided negatively affects a customer.
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Employers Liability Insurance (ELI)
ELI protects a business that employs staff from financial losses incurred when a staff member experiences a job-related illness or injury. Workplace injuries can be extremely costly for an employer if they are liable.
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Product liability insurance (PLI)
Product Liability insurance (PLI) policy cover protects your business from damage to property or personal injury caused by products your business/company has supplied or sold.
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Key Man Insurance (KMI)
Key man insurance policy cover protects businesses from the loss of a key employee such as a CEO by paying out a large sum on the event of their death or incapacitation. It is effectively life insurance against anything critical happening to a key employee. If your business is entirely reliant on one employee or a small group, this insurance can often help save the business from bankruptcy in a disaster situation.
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Landlord Insurance (LI)
Landlord Insurance policy cover (LI) protects business owners who own property from losses sustained as the result of renting that property. If a business owns its office and rents it out to other companies, this type of insurance will protect you from damages caused by a tenant.
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Trade Credit Insurance (TCI)
Trade credit insurance policy cover is an insurance package that protects private companies from their customers being unable to pay back a debt due to bankruptcy, default or insolvency. It’s most relevant for companies that operate under a B2B model and have a range of key customers who use offered credit facilities.
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
If you are considering starting your own real estate development company, usually you may not have any need to file for intellectual property protection/trademark because the nature of the business makes it possible for you to successfully run it without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
But if you just want to protect your company’s logo and other documents or software that are unique to you or even jingles and media production concepts, then you can go ahead to file for intellectual property protection. If you want to register your trademark, you are expected to begin the process by filing an application with the USPTO.
11. Get the Necessary Professional Certification
Aside from the results you produce as it relates to running a real estate development company, professional certification is one of the main reasons why most real estate development companies stand out. If you want to make an impact in the real estate development industry, you should work towards acquiring all the needed certifications in your area of specialization.
Certification validates your competency and shows that you are highly skilled, committed to your career, and up-to-date in this competitive market. These are some of the certifications you can work towards achieving if you want to run your own real estate development company;
- Certified Commercial Investment Member (CCIM)
- Real Estate Investment Certificate
- Real Estate Professional Assistant (REPA) Certification
- Certified Commercial Real Estate Advisor (CCREA)
- Chartered Real Estate Professionals – CREP
- Degree/Diploma in Real Estate and Building Engineering Related Courses
Please note that you cannot successfully run a real estate development company in the United States without acquiring professional certifications and business license, even if you have adequate experience cum background in the real estate investment industry.
12. Get the Necessary Legal Documents You Need to Operate
The essence of having the necessary documentation in place before launching a business in the United States of America cannot be overemphasized. It is a fact that you cannot successfully run any business in the United States without the proper documentations.
If you do, it won’t be too long before the long hand of the law catches up with you. These are some of the basic legal documents that you are expected to have in place if you want to legally run your own real estate development business in the United States of America;
- Certificate of Incorporation
- Business License
- Global Real Estate License (Optional)
- Tax Payer’s ID / Tax Identification Number
- Business Plan
- Contract Document
- Non – disclosure Agreement
- Employee Handbook
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Online Terms of Use
- Company Bylaws
- Memorandum of Understanding (MoU)
- Building License
13. Raise the Needed Startup Capital
Starting a real estate development business is capital intensive even if you choose to start on a small scale. Securing a standard office space in a business district, and raising working capital are part of what will consume a large chunk of your startup capital. If you choose to start the business on a large scale, you would need to source for fund to finance the business because it is expensive to start a standard large scale real estate development business.
When it comes to financing a business, one of the first things you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for startup capital for your real estate development business;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for Loan from your Bank
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
14. Choose a Suitable Location for your Business
In business, it cannot be overemphasized that the location you choose to start your business is key to the success of the business, hence entrepreneurs are willing to rent or lease a facility in a visible location; a location where there are high real estate activities and households with the required purchasing power, and lifestyle.
It is important to note that a business facility in good location does not come cheap hence you should be able to allocate enough fund for leasing/renting in your budget. These are some of the key factors that you should consider before choosing a location for your real estate development business;
- The demography of the location
- The level of real estate activities in the location
- The purchasing power of the residence of the location
- Accessibility of the location
- The numbers of real estate development companies and other players in the real estate industry in the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
15. Hire Employees for your Technical and Manpower Needs
There are no special equipment needed to run a real estate development company but you will definitely need computers/laptops, internet facility, telephone, fax machine and office furniture (chairs, tables, and shelves) amongst others and all these can be gotten as fairly used.
As regard leasing or outright purchase of an office facility, the choice is dependent on your financial standing, but the truth is that to be on the safe side, it is advisable to start off with a short – term rent/lease while test running the business in the location. If things work out as planned, then you go on a long – term lease or outright purchase of the property but if not, then move on and source for other ideal location/facility for such business.
When it comes to hiring employees for your real estate development company with plans to have clients all across major cities in the United States of America, you should make plans to hire a competent Chief Executive Officer / President (you can occupy this role), Admin and Human Resources Manager, Project Manager, Company’s Lawyer / Secretary, Head of Construction, Head of Acquisition and Disposition, Sales and Marketing Officer, Accounting Clerk, and Front Desk Officer.
On the average, you will need a minimum of 5 to 10 key staff members to run a standard real estate development company. Please note that this number does not include workers in construction sites.
The Services Delivery Process of the Business
The way real estate development companies work vary from one company to another, but ideally, a real estate development company is expected to first and foremost build a robust company profile, and pool investment capital from investors before starting their business.
Before a deal is sealed, a real estate development company is expected to carry out inspection on the location. This will enable them know the required amount needed for renovating the property and the current market value of same properties within the geographical location.
A real estate development company may decide to improvise or adopt any business process and structure that will guarantee them efficiency and flexibility; the above stated real estate development business process is not set on stone.
16. Write a Marketing Plan Packed with ideas & Strategies
Running a business requires that you should be proactive when it comes to marketing your goods or services. If you choose to launch a real estate development business, then you must employ strategies that will help you attract customers or else you will likely struggle with the business because there are well – known brands that determine the market direction for the real estate investment industry.
These are some of the marketing ideas and strategies that you can adopt for your real estate development business;
- Introduce your real estate development company by sending introductory letters alongside your brochure to households, estate managers, corporate organizations, businesses and other key stakeholders throughout the city where your real estate development company is located.
- Advertise on the internet on blogs and forums, and also on social media like Twitter, Facebook, LinkedIn to get your message across
- Create a basic website for your business so as to give your business an online presence
- Directly market your services
- Join local real estate development business associations for industry trends and tips
- Join local chambers of commerce and industry with the aim of marketing your services
- Advertise our business in community – based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories)
- Encourage the use of Word of mouth marketing (referrals)
17. Work Out a Reasonable Pricing for your Services & Products
One key factor that will help you sell / rent / lease your properties at a price that is highly attractive is to ensure that you source your startup capital from sources that won’t put pressure on you or give you high interest rate. So also, it is important that you purchase your properties directly from the owner of the property as against buying from a third-party dealer.
When it comes to building materials, it is advisable that you also purchase them directly from the manufacturers or from wholesalers. Another strategy that will help you get the right price is to ensure that you cut operational cost to the barest minimum and channel your efforts towards marketing and promoting your brand name.
Aside from the fact that this strategy will help you save cost, it will also help you get the right pricing for your services. You can also try as much as possible to work with independent contractors and marketers; it will help you save cost for paying sales and marketing executives.
18. Develop Iron-clad Competitive Strategies to Help You Win
The availability of a huge working capital base, your business process and your pricing model are part of what you need to stay competitive in the industry.
Another possible competitive strategy for winning your competitors in this particular industry is to build a robust clientele base and business network. Over and above, ensure that your organization is well positioned, key members of your team are highly qualified and your offers to investors can favorably compete with the some of the best in the industry.
19. Brainstorm Possible Ways to Retain Clients & Customers
When it comes to business, no matter the industry that you choose to pitch your tent in, one of the easiest ways to increase customer retention and perhaps attract new customers is to produce results and satisfy your customers always. If your customers are satisfied with your properties and services delivery, they can hardly source for alternative service providers.
Statistics has it that one of the major reasons why clients source for alternative service providers or product is when there is a drop in quality. Another reason is poor customer service. If you can continue to put up excellent and affordable properties for sale / lease / rent and your customer service delivery is top notch, then you won’t struggle to maintain loyal customers.
Part of what you need to do to achieve this is to track progress, results or outputs with the aim of improving on them quickly as the case demands. When it comes to managing your customers and building loyal clientele base, you should purchase a customized CRM software.
With a customized CRM system, you can easily stay in touch with your clients (you can carry out quick surveys, you can introduce new products and prices to them without any hitch, you can felicitate with them on their birthdays and other anniversaries, you can keep track of their progress, you can send bulk sms and customized e – mails and above all, you can easily receive compliant and feedback from them).
20. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
If you are in business and you are not deliberate about boosting you brand awareness and communicating your corporate identity, then you should be ready to take on whatever the society portrays your business to be. One of the secrets of larger corporations is that they are willing to spend fortunes to boost their brand awareness and to continue to communicate their corporate identity the way they want people to perceive them to be.
If your intention of starting a real estate development company is to grow the business beyond the city where you are going to be operating from to become a national and international brand, then you must be ready to spend money on promotion and advertisement of your brand.
Here are the platforms you can leverage on to boost your brand awareness and create corporate identity for your real estate development company;
- Place adverts on both print (newspapers and magazines) and electronic media platforms
- Sponsor relevant community based events/programs
- Leverage on the internet and social media platforms like; Instagram, Facebook, Twitter, YouTube, Google + et al to promote your properties
- Install your billboards in strategic locations all around your city or state
- Distribute your fliers and handbills in target areas
- Contact families who are interested in acquiring a home, corporate organizations who are interested in acquiring their own property/properties, home owners who are interested in selling off their home, property owners who are interested in selling off their properties, foreign investors who are interested in owning properties in the United States of America, and managers of public facilities within and outside the location where your company is located informing them about your business and the properties you have for sale
- List your real estate development company in local directories / yellow pages
- Advertise your real estate development company in your official website and employ strategies that will help you pull traffic to the site.
- Position your Flexi Banners at strategic positions in the location where your real estate development company is located.
- Ensure that all your staff members wear your branded shirts and all your vehicles are branded with your company logo.