HOW TO START A REAL ESTATE DEVELOPMENT COMPANY
By Ayoade Apelegan
Real estate development or property development can be defined as a business process that involves the renovation and lease of existing buildings, purchase of land and the sale of developed land. It is the process of buying land, financing real estate deals and building projects as well as orchestrating the process of property development from start to finish.
STEPS TO FOLLOW IN STARTING A REAL ESTATE DEVELOPMENT COMPANY
Write a Real Estate Development Company Business Plan
A business plan is what will keep you on track when you want to deviate from the set business goals.
Importance of having a business plan for your real estate development company
The business plan contains all information required to set up the business, number of people the business intends to hire, profit and loss analysis, cash flow analysis and the projected earnings from the real estate business.
The business plan is also used to:
- Attract investors
- To make sound decisions
- To raise money for your business
- To help identify potential weaknesses
- To communicate ideas with stakeholders
Contents of a business plan
The executive summary section of a business plan summarizes what a business is expected accomplish.
An executive summary reveals the company’s mission statement, company description, financial strategy, future aspirations, as well as a short description of its products and services. The executive summary also explains the reason why the business is also being started and include details about the proprietor’s experience in the industry. The executive summary section of the business plan should be clearly defined as this is the “reason” of the business plan.
This section of the business plan says a lot about the business. Information about the business, such as products and services, goals and the customers the business plan to serve.
This section also describes how the business will stand out from others in the industry and how the products and services being provided will be helpful to the target audience.
For a real estate development company, these will be:
- Our Products and Services
Real Estate Agency
Real Estate Joint Venture
- Our Mission and Vision Statement
SWOT analysis is a strategic planning technique that is used by businesses or individuals to identify how to maximize strengths, weaknesses, opportunities, and threats related to a business, competition or a project.
It is important to carry out a SWOT analysis for any business.
In SWOT analysis, strengths are the internal and positive attributes that a business possesses. These are those things that an organization does well that distinguishes it from its competitors. These are things that are within your control. It could be assets and equipment owned, patent, customer base, network, etc.
Weaknesses are the negative factors that detract a business from its strengths. The areas that a business needs to improve on to be competitive.
Opportunities are those external factors in a business environment that are likely to contribute to the success of a business.
Threats are external factors that a business has no control over. They are those situations which can negatively affect the business from the outside when they arise. Examples of threats are; a potential competitor, government regulations, shifts in market requirements.
Market analysis is an assessment of a market using both qualitative and quantitative means. Analysis of the customer segments, regulations, etc.
Market trend analysis is the comparison of industry data over some time. Market trends are influenced by consumer behaviour, government regulations, competition, new developments and other factors that could have an impact on the overall performance of a business.
Defining and addressing a business’ target market is a marketing tool employed in business analysis. The target market is the audience that is most likely to patronize a business.
A concise business plan will always present a clear comparison of a business to both its direct and indirect competitors. It shows their strengths and weaknesses.
SALES AND MARKETING STRATEGY
The marketing plan describes how you intend to get your products and services to potential customers. It highlights the steps that will be taken to promote products and services.
Sales strategy addresses how the products will be sold and services rendered.
The sales forecast is an important aspect of the business plan. A business and its growth are measured by sales. The sales forecast usually sets the standard for expenses, profits, and growth.
Sales forecast allows businesses to:
Plan for future growth;
Efficiently allocate resources;
Predict achievable sales revenue.
The sales forecast is always a 3-year projection of sales, expenses and growth.
Publicity and Advertising Strategy
Publicity strategy is a strategic management function which helps an organization communicate, establish and maintain communication with the public. It is the act of gaining public visibility or awareness for a product, service or business via the media while advertising is a long-term strategy used by an organization to increase the brand reputation of the company.
Publicity and advertising strategy suggested for a real estate development company are:
Usage of social media platforms;
Engaging in community-related programs;
Distribution of fliers and handbills
Pricing strategy will depend on factors such as;
Cost of completion of projects;
Location of properties;
Price being offered by competitors, amongst others.
Due to the volume of cash involved in real estate transactions, suggested payment options for a real estate development company are:
Payment via bank draft;
Payment via bank transfer;
Funding for Real Estate Development Company (Budget)
This section deals with how the funding for the real estate development company can be sourced.
The cost of starting up any business is usually dependent on the size and scale of the business in question. If you intend to start up a small scale business whose size is small in terms of employees and size of the facility, your start-up expenditure cannot then be compared to those who intend to start on a large scale, having a large facility and also employing several hands.
This invariably means that your start-up budget will depend exactly on what you intend to achieve with your business and the vision you had in mind as regards the business.
The real estate business is a capital intensive business and thus, requires a huge amount of investment.
The mortgage method can also be used to start a real estate development company. The mortgage method works by paying a percentage of the total sum of money required, while the rest is spread over time.
Paying off a Property Owner’s Debt
Paying off a property owner’s debt is a way to start a real estate development company. The person who is in debt gives their property to anyone willing to offset their debt. The debt could be paid off once or paid in instalment depending on the agreement that exists between the parties involved.
Other suggested sources of funds are:
A loan from financial institutions.
Conducting market research for a business prospect is essential, as it allows one to know if a business idea will work. For a real estate development company, market research allows you to know which niche in the real estate market will be good for you to venture in to. The research will also give you some idea of the ways to position yourself within the niche. Here are some points to consider.
Developing a line of product or services
Land flipping is the act of purchasing land and quickly reselling the same land for profit. The purchased land is often flipped “as is” with little or no improvements made before the sale. Land flipping doesn’t require much effort to venture in to. All that is required for land flipping is the ability to get cheap land and resale at a price higher than the amount it was purchased for.
Open Space Leasing
Open Space Leasing can be described as buying a property in an attractive location and leasing out to individuals and businesses for makeshift purposes. Monthly rent is paid on the leased property while the property appreciates for sale in the future. An example is where land is leased to block moulding businesses, mechanics, furniture makers, churches, car wash businesses, car park businesses etc.
Real Estate Agency
Of all the products and services of a real estate development company, this is the cheapest and easiest to start. It can be started with no cash.
It works by connecting the buyer of a property to the seller of the property. At the end of the transaction, the broker [real estate agent] gets a commission which is based on a percentage of the cost of the transaction between the buyer and the seller.
Property development generally involves either building new structures, modifying existing structures or improving real estate [land or building] to increase its value. A real estate developer works with a lot of other people such as; builders, plumbers, electricians, accountants, lawyers, architects, surveyors etc.
Property development also involves the following:
Building and developing building
Rent out or sell-off.
This aspect of real estate development involves buying land and developing it for any of the following purposes:
It is mainly put up for rental purposes.
Real Estate Joint Venture
Real estate joint venture is a deal between multiple parties to work together and pool resources together to develop a real estate project.
A landowner provides a piece of land while a real estate developer or an investor provides the necessary funding required to complete the building project. After completion of the project, the revenue derived from either the rent or sales of the building is shared between the parties in the agreed ratio.
A valuation is a confidential report for a particular client and for the special purposes of that client. The range of purposes for which valuation may be required is substantial and includes; sale, purchase, letting, taxation, rating, obtaining finance, insurance purposes, rental purposes, etc
Real estate development companies also manage facilities such as manufacturing and industrial buildings, office buildings, retail centres and parks, sporting facilities, hospitals, hotels, shopping malls, etc. The services rendered include but not limited to the following; security services, janitorial services, car park facilities
Registration of the business
Incorporation refers to the legal process used to form a new corporation. A corporation may be a business, a non-profit organization, etc.
In Nigeria, according to the provisions of the Companies and Allied Matters Act (CAMA) 1990, the Corporate Affairs Commission (CAC) is the statutory body legally empowered to incorporate a business.
Once the Certificate of Incorporation is issued to a business, it then means the business is a legal entity (can sue and be sued), distinct and separate from its owners.
Also, there are real estate professional institutions that should register with, they are;
Nigerian Institution of Estate Surveyors and Valuers (NIESV)
Real Estate Developers Association of Nigeria (REDAN)
Association of Estate Agents in Nigeria (AEAN)
Get licenses and permits
It is necessary to obtain the required licenses and permits from the local, state and the federal government as well as relevant associations as the case may be, this is to ensure a hitch-free construction process. In Lagos State for example, for every building undergoing renovation or construction, a building permit must be obtained from the Lagos State Building Control Agency (LASBCA).
After fulfilling all necessary legal requirement for starting a business, the next step is the hiring of members of staff. For a real estate development company, below are the required members of staff and their job descriptions.
- Chief Executive Officer
- Project Manager
- Civil Engineer
- Quantity Surveyor
- Company’s Lawyer / Secretary
- Admin and HR Manager
- Business Developer
- Front Desk Officer
Job Roles and Responsibilities
Chief Executive Officer
Reports to the board
Responsible for providing direction for the business
Responsible in ensuring the company remains afloat with a healthy bottom line
Responsible in ensuring that bills, payroll taxes and salaries are paid accordingly
The CEO is responsible for leading the development and implementation of the overall organization’s strategy
Draft strategies that would move the company forward and also remove or modify strategies that aren’t working well
Responsible for the creation of company policies, structure, vision, goals and objectives as well as company culture
Responsible for carrying out a risk assessment
Provides advice on the management of projects
Ensure that quality control is maintained during project executions
Represents the organization’s interest at various stakeholders meetings
Ensure that the services are meeting up to customer needs and requirements
Responsible for overseeing the accounting, costing and billing of every project
Responsible for the planning, management and coordinating all projects on behalf of the company
Assesses the environmental impact and risks associated with projects
Ensures that the project sites meet health and safety requirements
Responsible for managing, directing and monitoring progress during each phase of a project
Responsible for undertaking land surveys/measurements
Responsible for researching the records related to the land, survey, and the titles of the land.
Company’s Secretary / Lawyer
Responsible for handling all legal processes
Represents the company in legal proceedings
Responsible for drawing up legal documents for the company
Responsible for analyzing legal documents on behalf of the company
Admin and HR Manager
Responsible for the recruitment, selection, training and development of employee
Carries out regular performance appraisals on employees
Responsible for employee welfare
Responsible for employee retention and so drafts strategies that would ensure that retention is high while also working hand in hand with the Manager
Development of proposals and identifying of proposal requirement
Develop relationships with prospective clients, while maintaining existing client relationships
Documents all customer contact and information
Analyze business requirements and develop long term and short term strategies
Helps increase sales and growth for the company
Responsible for ensuring that invoices are booked in to the right account
Responsible for reconciliation of both cash and bank statements by month-end
Ensures on-time payment of all invoices
Ensures that the correct taxes are deducted and paid
Front Desk / Customer’s Service Officer
Provision of general customer support
Update customer record
General office upkeep
Receives parcels/documents for the company
Handles enquiries via e-mail and phone calls
Handles any other duties as assigned by the line manager
Work On Brand Building
A brand is a company’s public identity. For a real estate project to stand out and achieve its business goals, the company must be properly branded. Creation of branded items puts the company in the public eye. The brand can be promoted via roadshows, radio jingles, handbills and newspaper adverts, etc.
Branding creates a perception in the minds of people.
Set Up an Office
When starting, an office should be set up in a good part of town. Somewhere that is easily accessible to would-be clients should be considered. However, with limited resources, the business can be run from home pending when there are enough resources to get a proper store/office.
Build an Online Presence
Online presence covers both website and social media profiles. A real estate development company must have a good presence online [Internet]. The internet is a marketing tool for businesses
Your potential clients make an online search to find out real estate products and services on offer. As a real estate developer, you should ensure that during a search on the internet, your website comes out top in the search results. The website should an interactive one to enable prospective clients to make enquiries.
Draft a Marketing Plan
A business’ social media profile is also a marketing tool. Social media profiles on Facebook, Twitter, Instagram, Pinterest, can be used to build relationships with customers. These social media profiles are free to use. However, they also offer paid advertising.
Other ways of marketing real estate are; via networking, email marketing, handbills, posters,
Getting the Required Tools
It is a known and fact that the real estate businesses run on relationships.
Customer Relationship Management Software (CRM) and a Shared Inbox Solution are both real estate tools used in contact management. Customer relationship management software is used to track and analyze all of the interactions you have with your customers and prospects.
Customer Relationship Management Software (CRM) is used to organize all leads, contacts, and network connections.
Ask for Referrals
A satisfied client is a source of referral for business. Referrals are a significant source of leads for real estate businesses. It’s always important to ask for referrals from your customers. Once a job has been perfectly executed, getting a referral isn’t a big task.
At MATOG CONSULTING, we offer business plan services that contain all necessary information about the structure of your company, your expenses, expected investment and anticipated returns on your investment.
Do you want to register a business? MATOG CONSULTING offers business registration services. You can reach us on 08023200801 or email firstname.lastname@example.org