What’s the Best First Project for a New Real Estate Developer?

Question

For experienced real estate developers: If you were starting over today with no development experience, what type of project would you choose for your first development, and why?

I'm interested in becoming a real estate developer, but I want to learn the business correctly rather than jumping into a project that's too large for my experience level.

Would you start with a ground-up single-family spec home, duplex, small multifamily, subdivision, townhomes, or something else?

I'm especially interested in hearing what your first development was, what you wish you knew before doing it, and what you would do differently today.

Kasing Ng · Answer

Hi Nicholas, as a CPA who looks at deals through a financial underwriting and capital structure lens, I would suggest starting with a small infill spec home or a duplex.

I would not pretend to know every trade on a job site, but from a balance-sheet and risk-management perspective, here is why that scale makes sense:

• Keep the Capital Stack Simple: You are not syndicating institutional equity or structuring complex waterfalls right out of the gate. However, it does force you to properly model your equity checks, construction loan draws, and interest reserves.
• Timeline Risk is Cash Flow Risk: The biggest danger to a first project is not usually physical construction—it is carrying costs (loan interest, taxes, insurance) when a timeline slips. Underwrite your interest reserves conservatively.
• By-Right Zoning Only: Avoid anything requiring variances or public hearings. Municipal delays destroy financial returns faster than almost anything else because your debt service clock keeps ticking while cash flow is zero.

Keep the Capital Stack Simple: You are not syndicating institutional equity or structuring complex waterfalls right out of the gate. However, it does force you to properly model your equity checks, construction loan draws, and interest reserves.

Timeline Risk is Cash Flow Risk: The biggest danger to a first project is not usually physical construction—it is carrying costs (loan interest, taxes, insurance) when a timeline slips. Underwrite your interest reserves conservatively.

By-Right Zoning Only: Avoid anything requiring variances or public hearings. Municipal delays destroy financial returns faster than almost anything else because your debt service clock keeps ticking while cash flow is zero.

Start small enough that a minor delay or capital call would not sink your balance sheet, but treat the pro forma math with institutional rigor from day one.

Kwame Koom-Dadzie · Answer

@Michael Eskenasy , following the thread & thanks for the pearls

Michael Eskenasy · Answer

For a first development, I wouldn’t optimize for the project with the highest projected profit.

I’d optimize for the project with the fewest independent ways to fail while still forcing me to learn the entire development cycle.

That would probably lead me to a boring, by-right infill project: one buildable lot, one house — possibly a duplex if the zoning, financing and local market make it equally straightforward — existing utilities nearby, normal topography, clear access, good comparable sales and no entitlement heroics required.

The important part isn’t really “single-family versus duplex.”

It’s the adjective boring.

I would not want my first development to require a rezoning, subdivision approval, major utility extension, unusual stormwater solution, difficult grading, environmental remediation, questionable access, historic approval, five variances and a lender who has to believe six things that haven’t happened yet.

Every one of those may be perfectly manageable for an experienced developer.

The problem is that when you’re new, you don’t yet know which assumption is quietly carrying the entire deal.

That’s what I’d want the first project to teach me.

You’re really learning several businesses simultaneously.

You have to buy the land correctly. You have to understand what can legally be built. You have to figure out what can physically be built. You have to design something the market will pay for. You have to estimate it accurately enough that the spread survives reality. You have to get it approved, finance it, build it, deal with changes, carry it longer than expected and eventually sell or lease it.

The house is almost the easy part.

Development is largely the process of spending money in the correct order while reducing uncertainty faster than you increase your exposure.

That’s why I’d be careful with vacant land that looks cheap.

A $50,000 buildable lot can be substantially cheaper than a $10,000 lot that needs $90,000 worth of answers before anybody knows what can be done with it.

For the first project, I’d pay more for certainty.

I’d want to know before closing, to the extent reasonably possible, that my intended use is permitted, the lot dimensions work, utilities can serve it, access is legitimate, the soils/site conditions aren't hiding something ugly, and builders are actually capable of producing the project somewhere near my budget.

Then I’d work backward from the exit.

Say the finished house is conservatively worth $450,000.

I wouldn’t start with “I bought the lot for $70,000, so surely there’s money here.”

I’d start at $450,000 and subtract everything required to get there: vertical construction, site work, architecture, engineering, permits and fees, financing, taxes, insurance, commissions, carrying costs, contingency, and the profit I require for taking the risk.

Whatever remains is what the land is worth to this project.

That exercise alone probably saves aspiring developers from a lot of expensive dirt.

I’d also build a real contingency.

Not the ceremonial little contingency that disappears the first time somebody opens a wall or the municipality asks for something unexpected.

Development estimates are made with incomplete information. That uncertainty deserves a price.

Same with time.

If the spreadsheet says eight months, I want to know what happens at ten.

If it says twelve, what happens at fifteen?

Interest, taxes, insurance and overhead don't care that the contractor promised Tuesday.

For choosing the actual first project, I’d probably rank the common options something like this:

A straightforward infill single-family home is attractive because the construction, financing and exit are relatively easy to understand, and there are usually plenty of comparable sales.

A duplex could be even better where zoning allows it cleanly and the market supports it, because you learn more about income-producing real estate without dramatically increasing the size of the project.

I would be much less excited about making my first development a subdivision. Subdivision development introduces horizontal infrastructure, engineering, approvals, phasing, utility coordination and absorption risk before you even get to the houses.

Townhomes can be fantastic projects, but now you’re combining land development with multiple vertical units, shared systems/common elements, phasing and much larger capital exposure.

Small multifamily can also be excellent, but the jump in design, code, financing and operational complexity can be surprisingly large compared with a one- or two-family project.

The other thing I’d do differently from a lot of new developers is choose the municipality almost as carefully as the parcel.

Especially where you are in Pennsylvania, I’d want an architect, civil engineer, surveyor and eventually a contractor who have actually completed projects in that municipality.

Not just “a good architect.”

Someone who knows what the local planning staff expects, which issues keep coming back during review, how the submission process really works and what routinely slows projects down.

That institutional knowledge can save months.

And I’d spend money early on the professionals who can kill a bad project cheaply.

If a civil engineer can tell me for a few thousand dollars that my wonderful site has a $150,000 problem, that is not money I lost.

That may be the highest-return money I spend all year.

There’s a tendency when starting out to view architects, engineers, attorneys, surveys and due diligence as expenses that reduce the profit.

I look at them more like options.

I’m paying a relatively small amount of money for the right to discover whether I should risk a much larger amount.

That is an excellent trade.

So if I were starting from zero, my first project would probably be the most painfully conventional deal I could find that still pencils:

One clean parcel.

By-right use.

Existing utilities.

Ordinary construction.

Strong comps.

Experienced local professionals.

Multiple plausible buyers at the exit.

Enough margin to survive being wrong about something.

Then I’d use that project to learn the entire machine from acquisition through certificate of occupancy and disposition.

Project #1 doesn’t need to prove that you’re a brilliant developer.

It needs to make you competent enough to recognize what you’re looking at when Project #2 is more complicated.

Jay Hinrichs · Answer

entitlement flip