Eugene is the Founder of The Litvak Team @ Compass — one of the top producing and largest teams at Compass.
Outside of the real estate world, there’s a perception that developers are wealthy Monopoly-man types, sitting on piles of cash and twisting their mustaches in anticipation of their next big deal. The realities of developing property couldn’t be further from the truth. It’s hard work filled with potential pitfalls and a lot of risk. Laypeople may see big, beautiful buildings and huge financial payouts, but developers know the blood, sweat and tears that went into every inch of the project.
Let’s take a look at the biggest misconceptions about real estate development and, if you remain undaunted, how to dive into the business.
The Myths And Realities
1. “Real estate development is easy.” Civilians often think that real estate development is a matter of throwing money at a project and waiting for your returns while others do all the work. The reality is developers are incredibly hardworking and deeply involved in every facet of the process. They also have to have fantastic instincts about finding opportunities and predicting what will resonate with buyers or renters 18 to 24 months after breaking ground. It can be grueling, stressful work, and it’s definitely not for the faint of heart.
2. “In real estate development, you’re in charge.” If only! Real estate development is one of the most collaborative endeavors there is. Developers have to connect with agents to evaluate and acquire the target property. They need to obtain funding from investors and bankers. Developers are constantly interfacing with architects, suppliers, general contractors and subcontractors. And don’t forget that, at every step, inspectors and government officials are literally in charge of the project’s momentum and ultimate success or failure.
3. “Real estate development is straightforward.” You pick a property. You build a building. You reap the rewards. What could be simpler? Real estate development is never a linear process, and there are no guarantees. Whether it’s ground-up new construction or a full-scale gut renovation, Murphy’s Law of “Whatever can go wrong, will go wrong” applies. Materials can be delayed or just plain wrong. Contractors can flake, and the work can be poorly executed. Unexpected obstacles are a simple fact of every construction project. Developers must be masters of creative problem-solving with an agile mindset and the patience of Job.
4. “Real estate development is always profitable.” While nearly all forms of real estate have the potential to deliver fantastic long-term gains, there are hardly any developers who haven’t suffered losses at least once. Look at the past 20 years in New York City, and you’ll see multiple, massive market shifts that no one could’ve predicted. Real estate development is a precarious business, and small developers always have a personal financial stake in the success of each project.
If you’ve digested the realities of real estate development and still want to charge ahead, or at least learn more, where should you begin?
How To Get Started
Educate yourself: In New York City, we’re lucky to have access to some of the best real estate coursework available at Columbia University and NYU’s Schack Institute of Real Estate. At most local community colleges and online institutions, you can find great classes on construction fundamentals, real estate financing and investing, project management and more. You don’t need to obtain a master’s degree in real estate, but the more you know, the more you’ll succeed.
Be willing to work for free: Entrepreneur Gary Vaynerchuk says the best way to learn any business is to find somebody who does it well and offer to work for free. Mentoring with or shadowing a successful developer will give you an up-close understanding of the realities of the work. From there, you can try making a small investment in an upcoming project while observing its progress from soup to nuts. After all, nothing promotes learning and observation like having a little skin in the game!
Know what you want and what you can risk: Lastly, you have to spend time analyzing your potential financial outlay, your realistic goals and your comfort level for risk.
In the end, being a successful real estate developer takes a warrior mentality. You need a strong mindset, boundless passion for the work and a willingness to go to battle to reach your goals.