How Do You Successfully Start and Execute Real Estate Development Projects?

Real estate development represents one of the most lucrative yet misunderstood opportunities in real estate investing. While many investors stick to buying existing properties, developers create new projects from the ground up, capturing significantly higher profit margins. But the path from raw land to completed project involves complex planning, substantial capital, and navigating regulatory hurdles that can make or break your deal.

On this episode of The Real Estate Investing Club, host Gabe Petersen sits down with Eugene Gershman, a seasoned developer and founder of GIS Companies, to break down exactly what it takes to succeed in real estate development. Eugene brings a unique perspective, having transitioned from his father’s construction company to running his own development firm that partners with landowners to bring projects to life.

Quick Answer: What Does It Take to Start Real Estate Development?

To start real estate development, you need to complete a detailed feasibility study that analyzes market demand, product fit, design and permitting costs, utility hookup expenses, construction costs, and exit strategy. The developer manages the entire process—from land acquisition and financing to hiring architects and contractors—while bearing the primary risk and capturing the majority of the profits.

This comprehensive guide will walk you through everything you need to know about starting and executing profitable development deals, from understanding the developer’s role to navigating your first project.

What’s the Difference Between Being a Developer and a Builder?

One of the most common points of confusion in real estate is understanding the distinction between developers and builders. Eugene Gershman clarifies this critical difference that determines where the risk and profits sit in any project.

Quick Answer: A developer manages the entire development process, takes on the primary financial risk, and hires contractors to execute the work. A builder (general contractor) performs the actual construction. In residential markets, these roles are often combined, but in commercial development, they’re typically separate entities.

“There is a general contractor and there is a developer,” Eugene explains. “A lot of times in single-family market, the developer and contractor are the same person or the same company. And so that’s what’s typically referred to as cumulatively as builder.”

The developer’s role encompasses several key responsibilities. They find and acquire the land, create the project concept, secure financing, manage permitting and zoning approvals, hire all professional teams including architects and engineers, and ultimately guarantee the loan and post required bonds. The developer bears the biggest risk but also captures the largest share of profits.

In contrast, the general contractor focuses on the physical construction. They manage subcontractors, order materials, oversee day-to-day construction activities, and ensure the project is built according to plans and specifications.

Eugene notes that in commercial development, there’s more separation between these roles. “Not a lot of commercial developers also perform their own construction work,” he says. Major homebuilders like Toll Brothers may combine both functions, but most commercial developers maintain this distinction to manage risk and focus on their core competencies.

Understanding this difference is crucial because it determines your business model, capital requirements, and risk exposure. If you’re interested in development, you don’t necessarily need construction expertise—you need project management skills, financial acumen, and the ability to coordinate multiple professional teams.

What Are the Essential First Steps to Starting a Development Project?

Before you break ground or even make an offer on land, successful developers follow a systematic approach to evaluate opportunities. Eugene emphasizes that thorough upfront work separates profitable projects from costly mistakes.

Quick Answer: The first step is completing a comprehensive feasibility study that examines market conditions, product fit, permitting costs, utility expenses, construction budgets, and exit strategies. This detailed analysis must be done before committing to any deal.

Eugene has observed that landowners typically fall into two camps. “One camp thinks the development is super easy. You just hire an architect, you hire a contractor, you get it done,” he says. “And then another camp that thinks it’s so complicated that they would rather figure out how to launch a space shuttle than try to go through a development process.”

The reality sits between these extremes. Development is complex but entirely manageable with the right systematic approach. GIS Companies has created a feasibility study checklist (available as a free download on their website) that guides developers through the critical analysis steps.

Your feasibility study should include these essential components:

Market Analysis: Research current market conditions, absorption rates, competing projects, and demographic trends. Understand what products are selling or leasing successfully in your target area. Look at recent comparable sales and rental rates to establish realistic revenue projections.

Product Selection: Determine what type of development fits best for the site and market. This could be single-family homes, townhomes, apartments, retail, office space, or mixed-use. Your product choice should align with both market demand and site characteristics.

Design and Permitting Costs: Estimate expenses for architects, engineers, surveyors, environmental studies, and the permitting process itself. These soft costs can range from 10-20% of total project costs and vary significantly by jurisdiction.

Utility Connection Expenses: Calculate the cost to bring water, sewer, electricity, gas, and telecommunications to the site. Utility hookups can be surprisingly expensive, especially in suburban or rural areas where infrastructure may be distant.

Construction Budget: Develop a detailed construction cost estimate including site work, building costs, landscaping, and contingencies. Work with experienced contractors to get realistic numbers rather than relying solely on cost-per-square-foot estimates.

Exit Strategy Analysis: Determine whether you’ll sell, lease, or refinance the completed project. Calculate projected revenues, operating expenses, and ultimate returns. Build in appropriate contingencies for market changes and timing delays.

Eugene stresses that all of these elements must be analyzed “to as much detail as possible before you get to actually do the deal.” Skipping or rushing the feasibility study is how developers lose money.

How Do You Navigate Zoning and Permitting Challenges?

Zoning regulations and permitting requirements represent some of the most significant hurdles in real estate development. Many promising projects never break ground because developers underestimate these complexities.

Quick Answer: Navigate zoning by conducting thorough due diligence on current zoning, understanding conditional use permits, building relationships with planning departments, and being willing to negotiate density, setbacks, and design elements with municipal officials.

Eugene shares that his experience has taught him the importance of understanding not just what the current zoning allows, but what flexibility exists. “You can request special use permits, you can request conditional use permits,” he explains. “The only issue with that is that you have to educate the city on your project and on your plans. And that takes time.”

The permitting process typically unfolds in several stages. First comes preliminary review, where you meet with planning staff to discuss your concept and receive initial feedback. This informal stage helps you understand potential obstacles before investing significant money in detailed plans.

Next is the formal application phase, where you submit engineered plans, environmental studies, traffic analyses, and other required documentation. The city reviews these materials and may request revisions or additional information. Public hearings may be required for certain project types or when requesting variances from standard zoning.

Eugene emphasizes the value of working collaboratively with municipal officials rather than viewing them as adversaries. In his successful Bellevue townhome project, he explains: “We met with the city. We said, look, there’s very little that we can do here because of that creek, because of the buffers. But the city worked with us and we were able to mitigate the buffer.”

This collaborative approach led to creative solutions, including reducing the required buffer from a creek to increase buildable space and incorporating a private park into the design. These negotiations increased project density and profitability while addressing the city’s environmental concerns.

Understanding your local jurisdiction’s priorities helps you frame proposals that align with municipal goals. Cities care about aesthetics, environmental protection, traffic impacts, affordable housing, and tax revenue. When you can demonstrate how your project addresses these concerns, you’re more likely to gain approval.

Time is another critical factor in permitting. Eugene notes that “permitting can be a killer depending on the jurisdiction.” Some cities process permits in a few months, while others take a year or more. This timeline directly impacts your carrying costs and project feasibility, so build realistic permitting schedules into your projections.

What Are the Biggest Risks and How Do You Mitigate Them?

Real estate development carries substantial risks that can turn profitable projects into financial disasters. Understanding these risks and implementing mitigation strategies separates successful developers from those who fail.

Quick Answer: The biggest development risks include inaccurate cost estimates, permit delays, environmental issues, market changes, and construction problems. Mitigate these through thorough due diligence, conservative underwriting, contingency reserves, experienced partners, and avoiding deals that require excessive complexity to work.

Eugene learned this lesson the hard way through what he describes as his worst deal. “We had 22 acres of land that was an absolute nightmare for permitting,” he recalls. The property had steep slopes, required extensive environmental mitigation including wetland and stream buffers, and needed costly retaining walls and extensive grading.

The project started with overly aggressive timeline assumptions. What they thought would take three years stretched to nearly five years just for permitting and engineering. During this extended timeline, market conditions deteriorated and construction costs escalated significantly.

But the deal-breaker came from the financing structure. “It was a pretty complicated financial structure where we were supposed to buy it from the seller, but we needed their land as part of our collateral for the construction loan,” Eugene explains. “And that just didn’t work.”

Eventually, they had to walk away from the project after investing substantial time and money. The experience crystallized a crucial principle: “If you have to complicate it so much to get the deal done, then it’s better to just take a step back.”

This hard-earned wisdom applies across several key risk areas:

Cost Estimation Risk: Underestimating costs is one of the fastest ways to lose money in development. Combat this by getting multiple contractor bids, including 15-20% contingencies, and accounting for soft costs that first-time developers often overlook. Items like impact fees, utility connection charges, and extended carrying costs can add hundreds of thousands to a project budget.

Permit and Timeline Risk: Extended permitting timelines increase carrying costs and market exposure. Mitigate this by researching typical approval timelines in your jurisdiction, building extra time into your schedule, and maintaining positive relationships with planning departments. Consider starting with simpler projects in developer-friendly jurisdictions before tackling complex sites.

Market Risk: Market conditions can change dramatically during multi-year development projects. Protect yourself by keeping debt levels reasonable, maintaining cash reserves to weather downturns, and choosing projects with multiple exit strategies. Eugene notes the importance of having flexibility to sell, lease, or hold depending on market conditions at completion.

Environmental and Site Risk: Hidden environmental issues or difficult site conditions can derail projects. Always conduct Phase I and Phase II environmental assessments, obtain geotechnical reports, and budget for unexpected subsurface conditions. Eugene’s failed project had soil issues that weren’t fully understood upfront.

Partnership and Financing Risk: Complex partnership structures and creative financing arrangements may seem necessary to get a deal done, but they can create more problems than they solve. Eugene’s experience taught him that straightforward deal structures usually work better than elaborate arrangements that require everything to go perfectly.

The overarching lesson is that successful developers err on the side of conservatism. They underwrite with worst-case assumptions, maintain substantial contingency reserves, and have the discipline to walk away from deals that don’t meet their criteria—no matter how much time they’ve already invested.

How Do You Find and Structure Profitable Development Deals?

Finding and negotiating development opportunities requires a different approach than traditional real estate investing. The best deals often come from unexpected sources and creative structuring.

Quick Answer: Find development deals through broker relationships, direct landowner outreach, pocket listings, and partnerships with property owners who need development expertise. Structure deals creatively using option agreements, joint ventures, and master lease arrangements that align incentives between all parties.

Eugene’s most successful project—a 12-unit townhome community in Bellevue—demonstrates how great deals often materialize unexpectedly. A broker friend called asking for a favor: could Eugene tie up a property under contract as a backup buyer while the broker’s other client worked through their issues?

“I hate admitting that, but truth is truth,” Eugene says about signing a purchase agreement without initially planning to buy. “I haven’t done it since. I hate tying up properties just for the sake of tying them up.”

But when the original buyer fell through, Eugene took a closer look. The property sat on Bell Red Road in Bellevue, an area experiencing explosive growth with the Spring District development and Meta moving their offices nearby. The site had challenges—it bordered a creek with wetland buffers and poor soils—but the location had undeniable potential.

The asking price was around $3 million, which didn’t work for any development scenario Eugene could pencil out. Rather than walking away, he made an aggressive counter-offer. “I said, I can’t get anything to pencil for more than $1.25 million,” he recalls. Remarkably, the seller accepted—less than half the original asking price.

This negotiation reveals several important lessons about structuring development deals:

Don’t Accept Listed Prices as Fixed: Just because land is listed at a certain price doesn’t mean that’s its actual value. Gabe reinforces this point by sharing his own experience: “There was an RV park listed for $1.5 million. We offered $750,000. We got $750,000.” Make offers based on what works for your project economics, not on what the seller is asking.

Use Extended Feasibility Periods: Development deals typically include longer inspection periods than traditional real estate transactions. Eugene negotiated multiple extensions of his feasibility period, giving him time to work through the complexities without committing capital prematurely. This flexibility is crucial for conducting thorough due diligence.

Build in Multiple Exit Strategies: The Bellevue project had “a pretty unique creative finance structure” that provided flexibility in how they capitalized and exited the deal. While Eugene doesn’t detail the specifics, having multiple exit options—from selling completed units to refinancing and holding—protects you if market conditions change.

Work the Pre-Market: Many of the best development opportunities never hit the open market. Cultivate relationships with commercial brokers, land brokers, estate attorneys, and other professionals who know about properties before they’re publicly listed. Eugene’s deal came through a broker relationship, not a public listing.

Partner with Landowners: GIS Companies’ business model focuses on partnering with landowners who want to develop their property but lack the expertise or capital. This joint venture approach can work well because landowners bring the asset while developers bring the know-how and connections. Structure these partnerships so incentives align and both parties benefit from success.

Be Willing to Walk Away: Despite investing time and money in the 22-acre project, Eugene ultimately walked away when it became clear the deal wouldn’t work. This discipline is essential. Gabe emphasizes this point: “Realizing that you need to back away from it. That is such a difficult, difficult thing to do. And it’s something that everybody struggles with.”

The most successful developers maintain a robust pipeline of potential projects at various stages. They’re always looking at new opportunities so no single deal becomes emotionally loaded. This abundance mindset makes it easier to walk away from problematic projects and focus energy on the best opportunities.

What Skills and Team Members Do You Need for Development?

Real estate development requires orchestrating numerous professionals and managing complex projects. Understanding what skills you need and how to build your team determines whether you can successfully execute projects.

Quick Answer: Essential development skills include financial analysis, project management, negotiation, and relationship building. Your core team should include a real estate attorney, civil engineer, architect, general contractor, and lender who understands construction financing. Start by developing strong analytical skills and learning to coordinate professionals rather than trying to master every discipline yourself.

Eugene’s background illustrates the importance of business fundamentals over technical expertise. Despite growing up around his father’s construction company, he never learned the trades. Instead, he studied economics as an undergraduate and earned his MBA before joining the family business.

“I knew all the business theory because I just finished my MBA. I was always good with numbers and Excel,” Eugene explains. These analytical and project management skills proved more valuable than construction knowledge because developers coordinate specialists rather than performing technical work themselves.

Your development team typically includes:

Real Estate Attorney: Essential for structuring deals, reviewing contracts, navigating zoning issues, and protecting your interests throughout the process. Choose an attorney with specific real estate development experience in your jurisdiction who understands the nuances of construction contracts and land use law.

Civil Engineer: Prepares site plans, handles grading and drainage design, coordinates utility connections, and works through technical requirements with municipal engineers. They’re crucial for navigating site constraints and permitting.

Architect: Designs the project, produces construction drawings, and ensures the design meets building codes. For residential projects, you might work with a residential designer rather than a licensed architect, depending on project scale and local requirements.

General Contractor: Prices the work, manages construction, coordinates subcontractors, and delivers the finished product. Choose contractors with experience in your project type who carry appropriate licenses and insurance.

Land Use Consultant or Expediter: In jurisdictions with complex permitting, specialists who navigate approval processes can be worth their weight in gold. They understand what planning officials want to see and how to present projects for approval.

Construction Lender: Banks that specialize in construction financing understand the unique risks and timing of development projects. They’ll typically lend based on a percentage of completed appraised value and release funds in draws as construction progresses.

Property Manager or Leasing Agent: If you’re developing income property, having professional management or leasing expertise helps maximize initial occupancy and rental rates.

Eugene emphasizes the importance of building strong relationships with all team members. When he needed to negotiate with the city on his Bellevue project, those collaborative relationships made creative solutions possible. The city worked with his team to reduce creek buffers and increase density because they’d built trust through professional engagement.

Beyond assembling the right team, successful developers cultivate several personal competencies. Financial modeling skills help you quickly evaluate whether deals pencil out. Project management abilities keep complex, multi-year projects on track. Negotiation skills secure better pricing from sellers, contractors, and vendors. Perhaps most importantly, relationship-building creates deal flow and smooth project execution.

You don’t need to know how to build anything yourself. You do need to understand what good building looks like, how to read plans and contracts, and how to hold professionals accountable for delivering quality work on time and within budget.

How Do You Finance Development Projects?

Development financing differs significantly from traditional real estate loans. Understanding construction lending and structuring deals with appropriate capital determines whether you can execute projects profitably.

Quick Answer: Development projects typically use construction loans that release funds in draws as work progresses, based on inspections confirming completed work. You’ll need substantial equity—often 20-30% of total project costs—and strong personal guarantees. Alternative structures include seller financing, joint ventures with landowners, and private equity partnerships.

Traditional bank construction loans follow a predictable structure. The lender underwrites based on your experience, the project’s feasibility, and the completed appraised value. They’ll typically lend 70-80% of the appraised “as completed” value, meaning you need to contribute the difference between this loan amount and total project costs.

Funding releases in draws as construction progresses. Your contractor submits a draw request showing completed work, the bank inspects to verify progress, and they release funds for that portion of the project. This protects the lender from funding work that hasn’t been completed.

Interest usually accrues during construction and gets paid from a reserve account or capitalized into the loan. You’re not making principal and interest payments during construction—instead, the loan balance grows as draws are taken. Once construction completes, the loan typically converts to permanent financing or you refinance with a traditional mortgage.

Personal guarantees are standard for development loans, especially for less experienced developers. You’re personally liable if the project fails, which underscores the importance of conservative underwriting and maintaining adequate reserves.

Eugene mentions that his Bellevue townhome project used “a pretty unique creative finance structure.” While he doesn’t provide specifics, creative financing in development can take several forms:

Seller Financing: Landowners may carry financing or accept payment from project profits rather than requiring cash at closing. This can dramatically reduce capital requirements.

Joint Ventures: Partnering with landowners allows them to contribute the land as their equity while you contribute expertise and development management. Profits split based on agreed-upon percentages.

Master Lease Arrangements: In some cases, developers can control property through long-term leases rather than ownership, reducing upfront capital needs.

Private Equity: High-net-worth individuals and family offices often invest in development deals for higher returns than traditional real estate. These investors may provide equity capital in exchange for preferred returns and profit participation.

Mezzanine Debt: Additional debt that sits between senior construction financing and equity can bridge capital gaps, though it comes at higher interest rates.

The challenge with overly complicated financing structures is that they add risk. Eugene’s failed 22-acre project had complex arrangements where the seller’s land was supposed to serve as part of the construction loan collateral. When this structure didn’t work, the entire deal collapsed despite years of effort.

Simpler financial structures generally work better. A straightforward construction loan with appropriate equity contributions may seem less creative, but it’s also more likely to close and perform as expected throughout the project lifecycle.

What Should First-Time Developers Focus On?

Breaking into development can seem overwhelming given the complexity and capital requirements. Focusing on the right first steps and projects sets you up for long-term success.

Quick Answer: First-time developers should start with simpler projects in developer-friendly jurisdictions, partner with experienced team members, focus on thorough feasibility studies, maintain conservative financial projections, and be willing to walk away from complicated deals. Build skills progressively rather than attempting complex projects immediately.

Eugene’s journey into development—despite growing up around construction—reveals that you don’t need decades of experience to start. He joined his father’s company after business school with strong analytical skills but limited industry experience. “Thank God he didn’t let me run the company. I basically had to figure it out,” Eugene recalls.

This learning-by-doing approach works if you surround yourself with experienced professionals and start with appropriately scaled projects. Here’s how first-time developers should approach the business:

Start in Friendly Jurisdictions: Your first project should be in a city or county known for being developer-friendly. Avoid jurisdictions with reputations for difficult, slow, or unpredictable permitting processes. The learning curve is steep enough without adding regulatory complexity.

Choose Straightforward Sites: Pick sites without significant environmental challenges, difficult topography, or complicated access issues. Your first deal should teach you development fundamentals, not test your problem-solving abilities with wetlands, steep slopes, or complex utility extensions.

Build Conservative Projections: New developers consistently underestimate costs and overestimate timelines. Build in larger contingencies (20%+ for construction, 30%+ for total project timeline) and use conservative revenue projections. Better to exceed expectations than fall short.

Partner with Experience: Consider partnering with an experienced developer on your first deal. You’ll sacrifice some profit but gain invaluable education and avoid costly mistakes. Many successful developers got their start this way.

Master Feasibility Analysis: Before attempting actual projects, practice analyzing deals. Eugene offers a free feasibility study checklist on the GIS Companies website. Download it and work through the analysis on multiple potential projects to develop your evaluation skills.

Focus on Relationships: Start building relationships with commercial brokers, contractors, architects, and lenders before you need them. Attend real estate development conferences, join local development associations, and let people know you’re looking to break into the business.

Accept That Some Learning Costs Money: Eugene’s failed 22-acre project cost time and money, but it taught crucial lessons about deal complexity and walking away. Every developer has deals that don’t work out. The key is surviving mistakes to apply the lessons to future projects.

Don’t Rush: Development timelines are long—typically measured in years, not months. Accept this reality and build a business that can sustain longer project cycles. Many developers keep other income sources while building their development business.

Eugene emphasizes that development isn’t rocket science, but it does require systematic approaches and attention to detail. “I’m trying to bring bridge that gap” between those who think it’s too easy and those who think it’s impossibly complicated, he explains.

The sweet spot is respecting development’s complexity while building competence through education, relationships, and progressively more challenging projects. Start with simple deals in good markets, master the fundamentals, then tackle larger and more complex opportunities as your skills and capital grow.

Conclusion: Building Your Development Business

Real estate development offers exceptional profit potential for investors willing to master its complexities. Unlike buying existing properties, development lets you create value from the ground up, capturing margins that passive investing can never match.

The key lessons from Eugene Gershman’s experience center on systematic approaches, relationship building, and knowing when to walk away. Successful development starts with exhaustive feasibility studies that analyze every aspect of a project before committing capital. It requires assembling talented teams and maintaining collaborative relationships with contractors, consultants, and municipal officials.

Most importantly, successful developers maintain discipline around deal selection. Not every opportunity deserves your time and capital. If a deal requires excessive complexity to make it work, that’s usually a sign to move on to better opportunities. As Eugene learned through his failed 22-acre project: “If you have to complicate it so much to get the deal done, then it’s better to just take a step back.”

Start conservatively with projects that build skills without betting your financial future. Focus on developer-friendly markets, straightforward sites, and simple capital structures. Master the fundamentals before attempting complex deals. Build a robust pipeline so no single opportunity becomes emotionally loaded.

Development isn’t for everyone. It requires significant capital, extended time horizons, and the ability to coordinate multiple professionals while managing substantial risk. But for investors with the right skills and temperament, it offers unmatched profit potential and the satisfaction of creating something tangible that enhances communities.

The path forward is clear: study the fundamentals, download resources like the GIS Companies feasibility study checklist, build relationships with experienced professionals, and start analyzing potential projects. When you find the right opportunity that meets your criteria, execute with excellence and conservative underwriting. And always remember—the best deal you’ll ever do might be the one you walk away from.

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