Real Estate Development Insights

Jul 1, 2024

Lecture Notes on Real Estate Development

Introduction

  • Key Individuals: Ryan and Durk Vanderbelt
  • Focus: Real estate development and its profitability

Real Estate Profitability

  • House Flipping: Aim for $40k profit per flip
  • Ground-Up Development: Target $80k-$100k profit per development deal

Durk Vanderbelt's Background

  • 29 years old with over $30 million in apartment development
  • Family developed the number one rated resort in Oregon (Teo Resort)
  • European roots; family background in golf and teaching

Key Elements of Development

  • Construction Costs: Essential to understand and manage
  • Debt Structure: Critical importance, including interest rates and financing models
  • Market Understanding: Crucial for successful development

Case Study: Teo Resort

  • Located in Oregon, includes a golf course, hotel, and residential properties
  • Membership-based revenue model

Economics of Golf Course Development

  • Membership fees: Golf membership at $650/month, social membership at $300-$400/month
  • Initiation fee: $50,000 non-refundable
  • Restrictions on dues increase: Limited by CCNRs to 4% annually

Real Estate Development Strategy

  • Focus on larger deals to maximize return on investment
  • Importance of understanding the market and the long-term potential of the property

Case Study: 84-Unit Apartment Development

  • Acquired land for $1.2 million, developed for $19 million, appraised at $23 million
  • Financing: Raised $1.2 million initially and additional funds through construction draws
  • Construction completed quickly due to market conditions and efficient project management

Three Key Mastery Areas for Developers

  1. Construction Costs: Accurate budgeting and cost management
  2. Debt Structure: Locking in favorable loan terms and interest rates
  3. Rent Projections: Accurate forecasting of rental income

Multifamily vs. Assisted Living Development

  • Multifamily: Slower but profitable with steady cash flow
  • Assisted Living: Higher cash flow but requires robust operational management

Future Projects and Scaling

  • Expansion into secondary markets (e.g., Idaho, Montana)
  • Focus on senior and memory care facilities due to growing demand

Building a Development Business

  • Importance of relationships and networking in acquiring land deals
  • Potential to scale by entitling and flipping land without self-performing all construction work
  • Strategy for combining small and large projects for balanced growth

Challenges and Strategies

  • Navigating political and regulatory frameworks
  • Balancing quick cash projects with long-term development goals
  • Importance of accurate due diligence and understanding market dynamics

Conclusion

  • Emphasis on self-awareness and continuous learning in the development business
  • The potential for significant wealth creation through careful planning and execution