Those who understand the real estate industry and market will know what people like Dean Kirkland Vancouver WA‘s best-known real estate developer, do. Kirkland is perhaps not as well-known as the likes of Alfred Taubman and Donald Trump, but he gets close, particularly in the Vancouver Washington area. Those who don’t have this industry knowledge presume, by the job title, that a real estate developer improves and develops real estate.
In reality, there is a lot more to real estate development. It is not the same as someone who purchases a foreclosed property, puts in some new windows, and sells it again. Real estate developers deal in properties that are worth millions, if not billions, of dollars. It is possible for developers to be individual people but, more often than not, they are part of a wider group, such as the Kirkland Development Group.
Two Types of Development
There are two main types of real estate development:
- Land development, where unimproved land is purchased. This means there are no utilities or road access, or anything like that. The developer then sets “covenants”, which means they start to consider how the land could be used. Then, they get “entitlements”, which means they receive permission to develop their covenants. Once in place, work can commence, including grading, leveling, connecting to the utilities, zoning, and road works.
- Building developers, who come in after the land developers have done their work. They are the ones who plan buildings and construct them.
Naturally, the two types of developers work closely together, sometimes even through the same firm. Zoning, road access, and utilities all have to be different depending on the type of property that is being constructed, after all.
Sometimes, real estate developers work with existing properties and renovate them. More often than not, however, this is done through individual investors or through Real Estate Investment Trusts (REITs). Again, however, there are development companies that will do all the different types of development, thereby having a wider market reach.
Why Is Real Estate Development Needed?
Real estate development involves a lot of hard work, and it comes with some very significant risks as well. Building properties is very expensive, which is known as the “hard costs”, and there is no guarantee that there will be a return on this investment. Indeed, if there is a dip in the market, it may become all but impossible to sell the property. For most people, this is an unacceptable risk. Return on investments in real estate development tend to be high, they also take a long time to complete and that means spending a lot of money without seeing any back for a long time. The vast majority of people simply do not have the luxury of being able to do this.
However, real estate development is also the field of big money. Again, people like Donald Trump are perfect examples for this. Financing for these projects is usually done through debt leverage, which means money is borrowed and interest accumulates, but it is expected that the property will still sell for more than the cost. Debt leverage also reduces risks significantly. Mainly, however, there is a need for real estate development because people need properties to live in and work out of.