What real estate developers do

What real estate developers do and why I became one

I met up with a friend yesterday after work and the topic of my blog came up. He said he loved the content, but that he would like to learn more about the inner workings of what it means to be a real estate developer. His belief was that there are lots of city blogs out there, but rarely do you get the candid perspective of a developer.

I immediately thought this was a good idea for one simple reason: When I’m at a party and I tell someone that I’m a real estate developer, oftentimes they have no idea what that means. They usually think I’m a real estate agent. Or they ask me to explain a typical day. Either way, I’ve found it generally smoother (and more impressive) to just lie and say I’m an architect.

So I’m going to do just what my friend suggested. I’m going to make an effort to talk more about what it means to be a real estate developer. And to kick it off, I thought I’d start with some of the basics and then talk about how I got into the business.

Real estate developers are effectively the entrepreneur that make a new building happen.2 They go out and buy the land, they put a team in place (architect, engineers and so on), they get the necessary approvals to build (with the help of the team of course), they finance the deal, and then they get a builder to actually construct the project.

Developers are like an orchestra conductor2. They don’t play any instruments, they just direct the performance.

But at the same time, developers assume 100% of the risk of the project. If the building fails (because you can’t sell the condo units or lease out the space), that all falls on the developer (and his/her investors). All of the other team members are getting paid based on the services they provide. They’re consultants.

This distinction is what (can) make real estate development so lucrative–with risk comes reward. And I’ll be completely candid in saying that this is part of the reason I decided to get into development. I was trainin2g to be an architect and I started realizing that I could make more money as a developer.

But I also came to the realization that as a developer I would likely end up having more say over the built environment. That’s the unfortunate reality of my industry. Even though architects spend far more time than your average developer thinking about what makes buildings and cities great, I would argue that they don’t have nearly the same amount of say. Because if they did, we probably wouldn’t have so many crappy buildings in our cities. But it’s this way because architects aren’t assuming the risk.

Part of me used to actually feel bad about switching over to the dark side, which is how some architects refer to the development game. But the best way to summarize how I feel t2oday is through what an architect friend told me a few years ago: “Brandon, cities don’t need more architects that care about design. We have lots of those. Cities need more developers that care about design.”

And so that’s what I became. A developer who loves design and cares deeply about one of our greatest assets–cities

Product Costs

Breakup of Product Costs

The product costs are further classified into:

• Direct materials: Represents the cost of the materials that can be identified directly with the product at reasonable cost. For example, cost of paper in newspaper printing, cost of
• Direct labor: Represents the cost of the labor time spent on that product, for example cost of the time spent by a petroleum engineer on an oil rig, etc.
• Manufacturing overhead: Represents all production costs except those for direct labor and direct materials, for example the cost of an accountant's time in an organization, depreciation on equipment, electricity, fuel, etc.

kinds of costs

Labor Costs

Labor costs, also known as direct labor costs, refer to any funding given to workers who produce and build the products in question. Examples of labor include assembly line workers, machine operators and installation clerks. Indirect labor refers to individuals who are working for the company but have indirect roles in the manufacturing process. Indirect workers include janitors, supervisors and security guards.

Material Costs

Material costs refer to the raw materials that actually create the product in question. Raw materials cover anything from the finished product itself to any bolts, nuts and wood that went into building the original product. The final product is considered “raw” since it may be used as raw materials for another product for another business. Material costs also include direct materials that play a role in the manufacturing process, such as tiny motors, buttons and light bulbs.

Material Costs

Material costs refer to the raw materials that actually create the product in question. Raw materials cover anything from the finished product itself to any bolts, nuts and wood that went into building the original product. The final product is considered “raw” since it may be used as raw materials for another product for another business. Material costs also include direct materials that play a role in the manufacturing process, such as tiny motors, buttons and light bulbs.

Related Reading: What Are Variable Manufacturing Costs?

Overhead Costs

Overhead costs are those associated with the manufacturing process, excluding the raw materials and labor funding. The machinery and equipment used to build the products must undergo frequent maintenance and funding must be available to complete repairs. Overhead costs also cover any maintenance or rebuilding of the manufacturing facilities, such as expanding the production line or adding new lighting in the factory. Any expense or cost that does not fit into direct material costs and labor costs may fall into the manufacturing overhead category.

Nonmanufacturing Costs

Nonmanufacturing costs refer to any funding that is not directly associated with creating a product but connect to the actual product in terms of sales. In other words, nonmanufacturing costs refer to the funding spent on marketing, sales associates, equipment maintenance and automobile expenses. Salaries for marketers, accountants and managers in various departments in the company also falls into this category. Facility expenses, such as rent, light, heat and property taxes, are also nonmanufacturing costs as they fall into general operations costs.