Quote:
Originally Posted by paradigm4
I'm trying to do some research on development corporations and wanted to put together a list of popular, recognized local developers - thought a little mass collaboration would help here.
Also, not sure if anyone would know this, but how does one start a development corporation anyway?
|
Anybody can start a "development corporation", but not everyone can be successful at it. Starting a corporation is as simple as visiting your lawyer, filling out some paperwork and paying some fees. Congratulations you are now XYZ Ltd.!
To actually start your first development will require startup capital. Some developers have their own, but most require outside funding from investors before they can approach a lender to finance a project.
Let's assume I've been given $500,000 from investors (a pretty realistic number for a startup company) and I want to built an 10 lot subdivision. My bank has agreed to finance an additional $500,000 if raw land and up to $1,000,000 if the land already houses a structure (old house).
Let's say I find a raw parcel in Abbotsford for $1,000,000 and buy it. We apply to the city to have the land subdivided and we service the lots providing sewage, hydro etc. Servicing costs $80,000 per lot, financed by our investors. The city approves the subdivision, and by doing so has increased the value in the land. Suppose now we want to sell the serviced lots ready for construction to another developer. As a startup developer, we want to cash out and get out rather than dealing with the headaches of managing contractors and the construction process. We are leaving money on the table, but our investors have a 6 month timeline on this project. We find another developer ready to build single family homes and we sell the serviced lots for $300,000 per lot.
Our total sales price was $3,000,000. Subtract our servicing costs of $800,000, our seed capital of $500,000. Also subtract our mortgage loan + interest, say $600,000. Note that most developers obtain interest only loans on their land, that require all interest paid upon discharge of ownership, so the holding costs are low.
There are other numbers to subtract like taxes, city fees, realtor commissions, property transfer tax (when purchased), etc, so we'll say another $200,000 in misc fees.
Total profit: $900,000. Depending on whatever profit arrangement you had agreed to with your investors, let's say $400,000 is yours to keep.
Congrats! You now have enough money to move onto a bigger project and repeat the process.
Now keep in mind, that is an oversimplified version of the development process. The risks are VERY high, and there are a long list of potential challenges that can occur during the process. What happens if the market shifts and the value of your land declines during the process? What if the city does not approve your subdivision app? What if you can't find a buyer? What if the city approves the rezoning of the land behind you to industrial land, ruining the greenspace you thought you had and devaluing your land? For every startup project like that, there are just as many where the developer loses money, especially the amateurs.
Developers need to have the following skills: leadership, vision, sales and negotiation, analytical, perseverance etc. The Donald Trump persona doesn't differ greatly most of the from the developers I personally know, albeit slightly multiplied of course.
Obviously as your track record and capital grow, you can move onto strata projects, commercial land, highrises etc.
If you're successful and your company grows, you can hire staff to specialize in certain areas (sales & marketing, acquisition, customer service, quality control).
I hope that answers your question.
Linear Mode
