Property Development Checklist
Use this fast property development checklist as your guide for your next property development project. This checklist does not replace professional property development due diligence.
1) Assessing The Site
As a rule of thumb the first three things that you should look at are:
- Zoning – is the site correctly zoned to accommodate your proposed development. This also covers an examination of restrictive overlays on the site. A working understanding of planning zones and overlays is required in order to determine the highest best possible use of the proposed development site.
- Size – Is the size enough to accommodate four townhouses or three or 10.
- Frontage – Is the frontage wide enough for your development.
- Is the site flat? – A sloping site means adding retaining walls, which further translates into more construction costs. A site contour survey will help you determine that with ease.
- Is the site affected by Flooding or does it fall under a Bush Fire zone? Will, that has an effect on the yield?
- Highest Best Possible Use – is your Local Authority supportive of what you can fit on the site?
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2) Market Analysis
- What’s already being built in the neighborhood?
- Who are the builders already building it? Find out the costs they are building it at to get an idea of construction costs, as this would help you in your financial feasibility.
- What is the design intent in the local area? This is determining what kind of townhouses or units are being designed in your area.
- What is the demand for such designs in your area?
- What would be the end value of townhouse?
- What is the rent in the current market for a new townhouse & for an old property?
- What are some comparable sales in the nearby area?
3) Land Acquisition
- How is the site to be acquired?
- What are the terms of settlement?
- Can I negotiate the price? If not, can I negotiate the terms?
- Is it possible to do a joint venture with landowner?
4) Legal Structures
- What would be the best structure that will hold the development site?
- What will be the GST and Capital Gains implication of the development?
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5) Property Development Financial Feasibility
- Do your numbers stack up?
- What are various financial models? Develop and Sell Vs Develop & Hold
- What is my development margin?
- What is the maximum I can pay for the site?
- Have I conducted a validation feasibility for my development project?
6) Professional Reports & Consultants
- Do I need to engage my property development team?
- Do I require any of the following reports?
- Noise Reports
- Environmental Report
- Geotechnical Report
- Traffic Report
- Mining Report
- Any other report that the site may require.
7) Services & Storm Water
- How will the stormwater be discharged?
- Is there an established point of discharge?
- Is there water to the site?
- Is the water pipe capacity sufficient?
- Are basic utilities connected to the site, for example, Gas, Electricity & Telephone.
Land Development Feasibility Checklist
Whenever you sink some money into a plot of land, you will want the most out of it and maximise that investment. If you’re going to do this properly, however, you will need to follow a certain process and draw up a land development feasibility checklist to help you. What is this, and how should you proceed?
Often, it makes a lot more sense to subdivide a large part of land. This will ensure a much larger yield once you split the land into different sized blocks. There is an art, however, to this process. You will want to develop as many plots as you can and make the best possible use of the site.
This type of process will work wherever you are in the world. Obviously, you will need to find a site, first and foremost, and be sure that it has the necessary requirements and marketing appeal. To do this, you will need to bring in two key figures as consultants to help you make your decision. While their actual job title may vary from country to country, you will need a civil engineer and a land surveyor as part of your team. You may also want to consider a third expert, a geo-tech consultant, to help you test the soil as well. With this type of team, you ought to be able to determine the best possible use of the site, so that you can maximise your return on investment.
Land Development Concept
After this initial stage, you should have a conceptual design and something that you can take through a planning process. In Australia, you will typically get in touch with your local council or a zoning department and will need to adhere to their specific process.
Permitting For Land Development
After due consideration, the council or relevant department will give you the permit to build the chosen number of blocks on your site, but this is only the start of the process. You cannot market your project yet, as you will need to get the all-important services connected in each case.
You may need to deal with several service providers, and it’s crucial to ensure that they can all proceed without obstruction. You will need to talk to gas, water, and electricity utilities and will need to ensure that you can get rid of any waste as well. This means that you will need to bring in waste management companies to connect sewers and stormwater drains.
Typically, the council or county will own a public facility to handle sewer output and stormwater. You will need to apply for permission to connect to this facility, and your land surveyor or your civil engineer will help you to do this. They will draw up plans for easements and submit to the zoning department or permitting office for subsequent approval. You may need to do this for each individual block, and the detail can be quite involved.
The zoning plan will need to be approached in a certain way with certain overlays, and you may need to deal with restrictions relevant to the site. Once you’ve handled all this, however, you should be able to connect the existing infrastructure to the council facility so all the waste management and stormwater can be dealt with properly. You will also need to work with your water authority for incoming water, and this may be a separate process altogether. You may need to pay certain infrastructure charges or levies raised by the council or relevant authority before you can get your DA.
Signing Off / Plan Sealing
Once all the paperwork is in order and everything is connected, you will need to bring in the relevant department once again so that they can seal the plan and confirm that you have carried out the work in accordance with the original consent. Eventually, you will then get individual titles for each one of your blocks.
This authorisation will allow you to sell some of the blocks using an “off the plan” sale. This type of contract will not settle, however, until the whole titling process has finished. Look into this carefully depending on where you are in the world, as the process can differ from place to place.
Now that you are ready to go ahead, you have various options. You could sell all of the lots individually “as is,” or you could sell as a complete package, including the house and the land. You could work with a builder who will handle the construction for you and then you could package everything together into a contract of sale.
Cost Analysis & Land Development Feasibility
In summary, you may have to look at several different factors before you can determine feasibility. You will have to take into account certain costs, including acquisition, land value taxes, stamp duty percentage, and perhaps transfer taxes depending on your jurisdiction.
You also have to look at deal structure costs, especially if you are working in a joint venture with the landowner. For example, there may be legal costs associated with a JV agreement. You may have an option on the land that gives you a choice to buy the land in the future.
Don’t forget the soft costs. These include planning fees, surveys, and the soil report, for example. You have to engage your consultants and may need to work with your lender to determine a loan to cost ratio.
Financing For Land Development
Sometimes, a lender may refuse to finance an infrastructure levy or contribution. If they do, then you may need to look at these as additional costs. Just bear in mind that you need to look at a “sources and uses” calculation and remember that any development costs have to be funded from somewhere, whether from debt or from your pocket.
You may have other costs to consider linked to pre-sales, where the relevant contract might cost a bit more than a normal contract of sale. You might need to look at listing costs or marketing materials, together with a sales agent commission.
how to finance your property development project?
From a financial point of view, a lender will have funding tables that will help to determine what they can advance. They will separate all the soft costs from hard costs, look at the loan to cost ratio, and determine the loan to value ratio to figure out what you can borrow.
If you’ve done your modelling correctly, construction finance will be taken care of, especially when it comes to the loan draw utilisation percentage. Just remember to have a target development margin in your feasibility study and build in a certain percentage to cover the risks that you’re making as part of the development.
Before you begin, you should know how much you should be paying for the land in terms of its value based on its development potential. For example, if you want to make 20% as a margin and you can only fit in a certain number of lots to the land, you will need to plug this into your calculations to help you determine the maximum price you should pay.
Making Your Decision
If you have any investors or limited partners involved, you will also need to know what type of return they expect. This will be another factor that goes into your feasibility. You also need to determine what will happen if costs go up or the timeline changes, known as a sensitivity analysis. Finally, determine what would happen if your sales go up or down by a specific value. Armed with all this data, you will know whether to go ahead with the project or not.