With an estimated value of $32.6 trillion U.S. Dollars, the global commercial real estate market represents a prime opportunity for developers to make substantial amounts of money. However, this doesn’t mean that every development will inevitably generate a profit. In fact, a commercial real estate development often has tight margins and external threats to contend with. To learn more, take a look at how commercial real estate developers make money:
1. Finding the Right Investors
Most developers or development companies don’t have the funds to purchase land and finance an entire development. Instead, they rely on a pool of investors and effectively ‘borrow’ the cash for them in exchange for a percentage or share of their forecasted profits.
Here, both developers and investors can make lucrative returns if the development is a success. However, finding the right investors is critical and there are many ways to go about it. Extrance’s revolutionary platform for commercial real estate investments makes it easy for investors and development firms to connect with one another and find the right opportunities, for example.
2. Locating the Best Site
The best site for a commercial real estate development will depend on exactly what type of building is going to be constructed. Office buildings might be situated in towns and cities, for example, while shopping malls might be relatively close to residential neighborhoods.
As well as taking geography into account, developers will test and survey potential sites in detail to determine whether they’re viable for development purposes. Some land will require more intensive groundworks than others, for example. This could increase the cost of development, so developers will look for land that’s in a prime location and can be easily developed.
3. Securing Relevant Permits
You can’t simply purchase land and decide to build a commercial property on it. Instead, you need to obtain relevant permits from local authorities. Often, commercial real estate developers will purchase land that already has appropriate permits or ensure that they can be successfully obtain prior to confirming a land sale. This ensures that there are no unnecessary delays to the development process and enables developers to realize maximum returns by constructing the type of buildings that will generate the most profit.
4. Adding Value to the Site
Ultimately, developers make money by making a site increase in value. Once the development is complete, it should be worth more than the cost of the land and development works. When a profit is made, it is then paid to shareholders and investors in accordance with their original contracts.
This means that developers must take a savvy approach to financial forecasting and find the most cost-effective ways to develop a site. By doing so, profits can be optimized, and greater success achieved.
Can You Make Money from Commercial Real Estate?
You don’t need to work in the industry or have millions of dollars to make money from commercial real estate. With so many different types of investment opportunities available, commercial property can be a lucrative form of investment for almost everyone.