How To Know If A Property Development Project Is Feasible
How do you know if a property development project is feasible?
Before you spend your hard earned cash on a property development project, you’ll want to know that it’s feasible. That is, that you’ll make a healthy profit at the end of the day. The risk, time and effort has to worth it. For most people, a successful property investment gets a return of at least 15%. This is subjective and the right number for you may be higher or lower.
Whatever your desired return, you’ll have to test your multi-unit development profit potential early in the planning process. Do your research before you commit to the project.
Experience plays a big part in being able to accurately determine the costs and likely return on investment (ROI). A feasibility assessment takes into account the land costs, planning expenses, bank payments and fees, and construction costs. The costs are held up against the current property market prices (likely sale costs) to find out your potential return on investment (ROI).
For clients in Melbourne, delcon design and construct offer a free, no obligation feasibility assessment. With years of experience in multi-unit property development in Melbourne, we understand the different markets and where the largest profit potential exists.
To conduct your own feasibility assessment, we’ve detailed the steps involved below.
- Land capacity
Before you can start your feasibility assessment, you’ll need to know the capacity of your land. That is, what you’ll be able to build on it. This is determined by council based on a host of factors.
- Income potential
Now the fun part. Based on your initial findings, do your research on the asking prices for similar properties in your area. Note the potential sale prices for each dwelling.
- Consider your costs
The main costs to consider in your feasibility assessment are as follows:
INITIAL COSTS
- Acquisition costs
- Land deposit amount
- Stamp duty and legals applicable
- Lenders Mortgage Insurance (LMI) if applicable
- Loan interest rate
- Loan to value ratio
- Anticipated loan interest (based on a typical overall timeline of 12-24 months)
- Construction deposit
- Construction loan amount
- Anticipated construction interest (based on a typical build schedule of 6-12 months)
PLANNING AND PRELIMINARIES
- Project Potential Review
- Town Planning (all documents, applications and permits)
- Preliminaries (working drawings, engineering, etc)
- Construction (building contract and project specification)
CONSTRUCTION COSTS
- Complete cost for each dwelling
- GST
OTHER COSTS
- Council Public Open Space contribution (if applicable)
- Subdivision fees
- Real Estate Agent fees
- Taxes
With a turn-key service, your design and construct team will handle the entire process for you. This means that everything from initial design to handover is in the scope of the construction fee. You won’t have to allow for the ‘Planning and preliminaries’ costs above, as this will be included in the overall Turn-Key price.
Note: make sure you check this with your builder and are very clear on the inclusion and exclusions of the building contract.
If you’re considering a multi-unit development in Melbourne, give delcon a call on 1800 335 266 for your FREE feasibility assessment today.