How to Get Into Real Estate Development With No Experience

The rule of three behind 250+ doors: the numbers, the team, and where your time actually goes on a first development deal.

Development is not hard. It is just new to you, and there is a huge difference between those two things. The people best positioned for this game, capital-ready professionals with successful careers, walk away before starting because it looks complicated. After 250+ doors in 7 years, here is the whole game in three parts: the numbers, the team, and your time.

The numbers: sale price, build cost, land cost

You live and die by three numbers. The sale price you do not control: if a sixplex gets roughly $320,000 per door in the neighborhood, pretending you will get $400,000 is setting yourself up to fail. The build cost barely moves: at $160 a square foot you might optimize to $150, never half. The land is where you win. Those three numbers should spit out a 20-25% margin as the baseline.

The land is where you reduce your risk

Our projects average 35-40% margin, and the reason is the land. Arthur bought one lot for $275,000 that the neighbor paid $450,000 for. That is almost $200,000 of extra equity because he got in at roughly 60 cents on the dollar. And he does not buy the land or take the construction loan until permits are approved.

The team: builder, agent, lender

Three people do about 99% of the work. Your builder must be a spec builder, not a custom home builder. Custom builders upcharge 50-200%, which is why people think building costs $300 to $500 a square foot; spec builders build from $100 to $180. Your agent brings deals and sells for maximum dollar, but be picky, most agents do not close a deal a year. Your lender funds up to 90% of total project cost on investment deals and 95% on a personal house.

The money: what you actually bring

Simple math on a $500,000 project, say $100K land and $400K construction: you bring 10% down, $50K, for an investment deal, or 5%, $25K, for a personal house, plus 1-3% in closing costs. For a personal build start with your local credit union. Investment lenders underwrite the deal, not your income.

Your time: about 50 hours per project

Your time goes three places: acquisition, funding, and execution. Finding the deal and making sure it pencils takes the most energy. The build itself takes the least: walk the site with a consumer’s eye, keep the builder on schedule, scope, and budget, and submit draws to the bank. Call it roughly 50 hours start to finish. At $100,000 of profit, that beats a doctor’s hourly rate, and a fourplex takes the same 50 hours with four times the profit.

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