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So You Want To Be a Developer?

As a builder I meet a lot of people who want to be a developer. You know; buy some land, build some homes or apartments, and make a killing in the real estate market. It sounds easy and when you peruse the vacant land listings and the new homes market, the math seems to work.

There is a lot more to real estate development than people think and the people who do all their homework before investing their life savings often change their mind. Some, unfortunately, get in too deep to change their mind and end up loosing a lot of money.

Let’s take a quick look at what real estate development really entails.

Land Development: This is one of the most significant and often overlooked costs in developing property to create a development or subdivision. Whether building an apartment building (multi-family) or a series of single family homes (a subdivision), the rules and ordinances that apply to individuals building a family home don’t usually apply to a larger project. Even when water, sewer and electricity are available in the neighborhood, there is no guarantee that there is sufficient service for a new development. Developers may be required to upgrade utilities at their expense before being allowed to build. Local ordinances may require off-street parking and may also have very strong standards for construction of any streets within a development. Zoning standards may limit the size or number of living units and developers may be required to provide for disabled parking and the ramps necessary to accommodate mobility devices. Stormwater abatement is also a significant concern in many areas and developers will need an engineering study and plans that show the new development will not unduly increase the demand on the city’s stormwater management system.

Hidden Costs: The fees assessed to developers are often much greater than those for single family homes. Impact fees are common and many jurisdictions have different fees for developers than individual homes. These fees can be broken out as the cost for schools, police, public works, libraries, fire and rescue, and utility system improvements and maintenance. The fees for a subdivision or apartment complex can be staggering and are often not included in the initial math by a new developer. Permitting costs can also be very high for developers to pay for the plan reviews needed and the multiple inspections throughout the construction process. In urban environments a condition of permitting may be a traffic study, a fire hydrant study, and even storm water abatement studies. These studies can cost hundreds or thousands of dollars and may reveal inadequacies in infrastructure that must be upgraded by the developer prior to getting any permits. Asking developers to add hydrants, road improvements and utility upgrades are very common conditions for permitting a new project.

On-Site Utility Costs: Connection fees to city water and sewer are usually modest, but when a road is needed and a water and sewer feed must be run throughout a development the cost can be significant. In areas without much natural land slope the developer may also be required to put in sewer lift stations. The cost of bringing these utilities onto the developed land and distributing to all living units can cost 10s of thousands of dollars per unit.

Still want to give it a go? Talk to Morgan Davonn about purchasing a complete checklist for developers. It goes far beyond this overview and using this guide, along with expert advice from our consultants will help you keep all costs in perspective as you create the next great neighborhood.

© Copyright 2022 Eyrie Press

Berryville, Virginia All Rights Reserved

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