how do real estate developers make money

How Do Real Estate Developers Make Money?

Owning and investing in real estate is one of the most desirable careers you can have today. Working in real estate offers you the freedom of a flexible schedule and the opportunity for major financial growth. 

In this article, we’re going to focus on one of the most lucrative real estate careers: real estate development. 

What is a real estate developer? How do real estate developers make money? Keep reading to find out. 

What Is a Real Estate Developer?

What does a real estate developer do? Well, you can think of a real estate developer as the one who oversees a new building project. 

A real estate developer buys property with the intention of starting a new building project on it. Real estate developers are the driving forces of growth in the real estate industry.

After a project is complete, real estate developers sell the property for a profit. 

Like many other real estate jobs, development can be a high risk-high reward career.

The more money you are willing to sink into a property, the more money you can see once that property is completed and sold. We’ll get into the money in detail shortly. 

It’s important to know that real estate developers are responsible for overseeing a building project from beginning to end. 

Developers hire crew members, architects, consultants, and anyone else who will be working on the project. It is the real estate developer’s vision that guides the project, and as such, they are responsible for covering the costs.

Real estate developers must have the ability to think of the big picture and manage many moving parts. Organizational skills, business training, visionariness, and patience are all traits that any great real estate developer has. 

Residential vs. Commercial Real Estate Development

There are two types of real estate development; residential and commercial. Let’s get into the differences between these two fields. 

Residential real estate development refers to the development of single-family homes, apartments, and apartment complexes. Residential real estate is generally a less risky field, but that isn’t always the case. 

Developing a large apartment complex can carry very high costs; this is a venture for more experienced developers. 

Smaller residences, such as single-family homes or small apartment buildings, are great projects to start out with if you’re a beginner real estate developer. 

Commercial real estate development is a slightly different game. Commercial real estate almost always comes with higher costs than residential. 

Commercial real estate projects can require more specialized contractors, more legal red tape to cut through, and a larger financial investment. However, this means commercial real estate developers can sell these properties for a higher profit. 

Commercial real estate development requires more qualifications and experience than residential development does. It’s a high-paying, high-responsibility job. 

If you’re just starting out, go into residential development first. Test the waters with a safer investment before delving into the complex world of commercial real estate. 

Once you see success as a residential developer, however, consider going commercial (especially if you have a business degree). 

How Do Real Estate Developers Make Money?

Real estate developers make money by selling their completed properties for a profit. The average developer sale nets a profit of about 18%. 

This means that the amount of money you make as a developer is almost entirely up to you. The more money you can sink into a property, the more profit you’ll end up with; hopefully. 

Part of being a successful real estate developer is having the ability to spot a good investment. If you sink a bunch of money into a property in an undesirable location, you may not see much of a return. 

The same is true of properties that are going to require high labor costs due to environmental challenges or unusual zoning laws. 

Real estate developers make money by knowing a profitable property when they see it and selling that property with skill. 

What Is the Average Salary for a Real Estate Developer?

Average real estate developer salaries in the U.S. range from $56,000 per year to $159,000 per year, with the average salary being about $94,000. 

It is relatively common for large real estate companies to hire experienced developers at starting salaries of $100,000 per year or more. 

These salaries depend on what kind of projects you’re taking on and where those projects are located. 

The cost of living in your state affects the real estate market. In general, metropolitan areas see larger real estate sales than rural ones. 

Commercial real estate developers make more on average than residential developers. 

How to Become a Real Estate Developer

Becoming a real estate developer takes time and effort. We recommend getting at least 5 years of real estate experience under your belt before trying your hand at development. 

Unlike some other careers in real estate, you do need some college education to be a developer. Business education is highly encouraged (and required by most companies that hire developers). 

Getting your education should be your first priority. Then, you should spend a few years working in the real estate industry. 

You need investment capital to be a successful developer. If development is one of your goals, start saving as soon as possible. 

The more money you can personally sink into your development projects, the less you need to worry about finding investors. 

Once you feel ready to enter the world of real estate development, pick the perfect location. Research location costs, zoning laws, and real estate trends across the country. 

Choose a low-risk project for your first shot at residential development. Once you’ve successfully made a profit on one property sale, you can build on that momentum and jumpstart a high-paying career. 

Other Careers in Real Estate

Since you can’t jump right into real estate development, you might want to know more about working in real estate. There are several well-paying real estate jobs that you can use as a stepping stone to development. 

Let’s go over some of the most desirable real estate jobs.

Appraiser 

Real estate appraisers are the professionals you call when you need to know how much a property is worth. They are invaluable to both real estate developers and homebuyers. 

Appraisers typically make about $55,000 per year.

Appraisal is a great entry-level real estate field that allows you to learn about property value and make connections with developers and investors.

Loan Officer

Real estate loan officers help you find the best possible loan rate for your real estate investment. Loan officers don’t work directly for a lender; they just help you find the best deal. 

Loan officers are usually paid on commission and make about $75,000 per year. 

Working as a loan officer is a great way to get a sense of the property values and homebuyer budgets in your area. 

Loan officers can also be licensed real estate agents! In this industry, it is common to wear multiple professional hats.  

Broker

A real estate broker is the liaison between someone who is selling a property and their potential buyers. Real estate brokers often work independently and are paid on commission. 

Brokers can make anywhere from $35,000 to over $100,000 per year. 

Because brokers are paid on commission, their income is entirely decided by how successful they are at making sales. 

If you become a successful real estate broker, you can put away a considerable amount of money to fund your future real estate goals. 

Consultant 

Consultants are the people you call when you need a second, expert pair of eyes. Consultants are often employed by large real estate companies. 

Becoming a consultant is a great step on the way to becoming a developer. Consultants help developers evaluate properties and decide whether or not they are worthwhile investments. 

The average real estate consultant makes about $80,000 per year. As with development, consulting in commercial real estate tends to pay more than residential. 

Establishing yourself as a trusted industry consultant is a great way to set you up for a future career in development. 

When you’ve already proven yourself to be a trustworthy consultant, you won’t have to try too hard to find investors for your projects; they’ll already know what an expert you are. 

Start Your Real Estate Career Today

How do real estate developers make money? Now you know the answer. If a career in real estate sounds appealing to you, you can begin training right away.

Click here for more of our helpful real estate guides! We offer answers to the most common questions about all sides of the real estate industry.

Related articles