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
The most common definition of economies of scale refers to the decrease in production costs of a single item due to a business enterprise’s expansion. In short, mass production can ...
Also called a rollover mortgage. Provides a borrower with a fixed-rate mortgage that expires at a preestablished time, such as in four years. This permits the lender and borrower to ...
A business in which one or more person, with unlimited liability, called general partners, manage the partnership. There are also limited partners who contribute capital, but do not manage ...
One who agrees to pay the debts of another in the event that the debtor does not pay. The creditor can demand payment from the surety as soon as the debt becomes due. Although a surety ...
An agreement occurring from actions of those impacted, but not communicated in writing or orally. For example, it is presumed that a real estate agent will perform his or her obligations ...
Economic policies designed to reduce the fluctuation in the business cycle. An example is Federal reserve monetary policies. An attempt by an underwriter to prevent a market price of a ...
Individual making the payments in a mortgage or pledging a mortgage or property. ...
An adversary hearing allows both parties to an issue to present their views. A public procedure performed by an administrative or legislative body to investigate certain matters and ...
Process of conferring and consulting with clients concerning real estate investments and developmental projects. See also American Society of Real Estate Counselors (ASREC). ...
Have a question or comment?
We're here to help.