A New De­vel­oper? Start Small.

The Washington Post Sunday - - Real Estate -

Wash­ing­ton: A friend and I are think­ing of start­ing our own real es­tate in­vest­ing/de­vel­op­ment firm. What are the ba­sic things we need to do to get started? Do you know of any good sources of in­for­ma­tion that could help us? Jim Abdo, chief ex­ec­u­tive of Abdo De­vel­op­ment: Start small. The big­gest mis­take most peo­ple make when they want to en­ter real es­tate de­vel­op­ment is try­ing to take on too much, too fast. Know that you are go­ing to make mis­takes. It is bet­ter to deal with mis­takes on a smaller project than on a larger one. As your con­fi­dence and knowl­edge grow, so can the size of your projects.

A great source of in­for­ma­tion can be found within the Dis­trict of Columbia Build­ing In­dus­try As­so­ci­a­tion. Join­ing the as­so­ci­a­tion would get you di­rect ac­cess to the movers and shakers of D.C. real es­tate. There are ex­cel­lent pre­sen­ta­tions and lec­tures avail­able through DCBIA mem­ber­ship.

Fi­nally, this is a time to be care­ful in the mar­ket­place. While the fun­da­men­tals of the mar­ket are very sound, and I be­lieve the fu­ture is quite bullish, you are ar­riv­ing a bit “late to the dance.” Op­por­tu­ni­ties con­tinue to ex­ist, but the mar­ket is sig­nif­i­cantly more com­plex and crowded. All the more rea­son to pay par­tic­u­lar at­ten­tion to my first point: Start small.

Richard Kent Green, Oliver T. Carr Jr. Chair of Real Es­tate Fi­nance at Ge­orge Wash­ing­ton Univer­sity: The most im­por­tant thing you need to get started in de­vel­op­ment is cap­i­tal — both eq­uity (i.e. you and/or your busi­ness part­ners put up cash) and debt (i.e. mort­gages).

At­tract­ing cap­i­tal is rel­a­tively easy — once you have al­ready proven your­self to be a suc­cess­ful real es­tate in­vestor or de­vel­oper. When you are start­ing out, at­tract­ing cap­i­tal is con­sid­er­ably more dif­fi­cult. One way to be­gin is with four-unit rental prop­er­ties. Th­ese prop­er­ties can be fi­nanced with 20 per­cent down pay­ments and sin­gle-fam­ily mort­gages. If your credit his­tory is good, you should be able to ob­tain fi­nanc­ing at at­trac­tive terms.

You should be aware, how­ever, that such prop­erty in the D.C. area is cur­rently rather ex­pen­sive to buy rel­a­tive to the rental in­come it gen­er­ates. Prices are much lower in Bal­ti­more, Philadel­phia and Rich­mond, but man­ag­ing prop­er­ties from a dis­tance can be dif­fi­cult.

The lead­ing or­ga­ni­za­tion for real es­tate de­vel­op­ment is the Ur­ban Land In­sti­tute, which puts out many good how-to publi­ca­tions. Richard Peiser’s and Anne Frej’s book, “Pro­fes­sional Real Es­tate De­vel­op­ment” (ULI Press, sec­ond edi­tion), is also very good. Send your real es­tate ques­tions to realestate@wash­post.com.

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