← Deal Academy · Lesson 1 of 5 · 6 min
How investing in development works
Who takes part in a project, where the return comes from and how long your money stays invested.
The players
A development project brings several parties together. The sponsor (or developer) finds the land, builds the plan, gets the permits and runs construction. Investors put in most of the equity. A bank or lender finances part of the cost with debt. At the end, a buyer or a new loan pays the money back.
Where the return comes from
The return comes from the gap between what it costs to build and what the finished project is worth. If building costs 8 and the finished building is worth 10.4, that gap, minus interest and expenses, is the profit shared by the sponsor and the investors.
The timeline
- Land and permits: 6 to 18 months.
- Construction: 12 to 30 months, depending on size.
- Sale or stabilization and refinancing: 6 to 12 months.
- In total, money is usually invested for 2 to 5 years and cannot be withdrawn early.
Flip & Rent (buy, renovate and sell or rent) is usually shorter and lower risk. Development (ground-up construction) takes longer but can offer a higher return.
Key points
- The sponsor runs the project; you provide capital.
- The return comes from building for less than it is worth.
- Expect your money to be tied up for 2 to 5 years.
Look at real projects and compare timelines and returns.
General educational content. Not investment, legal or tax advice.