Developer’s Profit
Definition of "Developer’s profit"
The term developer’s profit is the actual profit generated by a developer’s project after the costs of the development have been covered. This profit can come from the sale of the development in the case of residential developments, i.e., each property sold generates an income out of which the developer subtracts the cost of the property and comes out with the end profit. In other words, the developer’s profit is the sum of money a developer earns in a development project after all costs have been paid. This is the offset to the investment risk and time and labor the developer has invested in the outcome of the development.
How does the Developer’s Profit Work?
While sometimes it can be called entrepreneurial profit, the developer’s profit, besides being the actual profit earned by the developer once the real estate project is sold, it is also the profit they anticipate to gain after the real estate transaction. However, in comparison to the entrepreneurial profit, the developer’s profit is based, as mentioned above, on the time, expertise, and energy of the developer, the person responsible for overseeing the overall development.
During the cost approach calculations, the measure of the project’s profit includes both the entrepreneurial profit and the developer’s profit. Usually, the developer’s profit can range between 5 to 15% of the project’s total cost. This profit is generated from the difference in cost of materials, overhead expenses, and labor compared to the end project’s value. Still, it’s important to note that the developer’s profit can be affected during certain economic conditions that impact the market. For example, if the cost of the materials ends up being much higher than initially evaluated or if miscalculations occurred in the project’s planning stages.
Popular Real Estate Terms
Provision in a lease agreement in which the lessee is given the right to buy the property at the end of lease term. In many cases, the option price is attractive to encourage acquisition. ...
Also known as “cap rate” or “income yield”, Capitalization Rate is a useful way to compute the rate of return on a real estate investment. It is commonly used in the ...
A proposal to buy property at a specified price. The seller of the property has the options of accepting the offer, rejecting it, or making a counteroffer. For example, John signs a listing ...
An individual's possessions at his residences, such as furniture. A listing of items and their costs is recommended to obtain proper insurance coverage and as support for insurance ...
The real and personal assets of a person at the date of death. The distribution of the assets to the heirs depends on the provision of the will. If no will exists, the distribution is based ...
model depicting on paper what a structure physically looks like. The dimensions are draw on a proportionate basis to the real thing. An example is a scale of an existing or proposed office ...
Small one story frame house or cottage. ...
Relationship between individuals or entities whereby rights given to one are returned in kind to the other. An example is where one person has the right to use facilities of another with ...
Unregistered stock or bond that pays the holder dividends (if stock) or interest (if bonds) as well as the selling price when sold (if stock) or principal (if bonds are held to maturity). ...
Have a question or comment?
We're here to help.