How to conduct Property Development Financial Feasibility Part 1 of 2

By Amber Khanna | Property Development Financial Feasibility

Mar 28

Property Development Financial Feasibility

The important concept to remember when conducting a property development financial feasibility is to make sure that you don’t end up paying more for land.

– Land value is a crucial component when conducting a financial feasibility. Usually, everything remains constant, including professional fees, construction value, permit fees, selling costs etc. The only two variables in a feasibility study are land and end sale value. Just because you have paid more for land, does not mean that you can get more for your developed product.

Time to Walk Away

– Let’s look at a hypothetical scenario. You are considering buying land to develop 4 x 3Bedroom townhouses. You have determined that they sell for $530,000 in your suburb. However, the vendor is asking for $600,000 for his land. Which pushes the price of land to $150K for each townhouse.

– Now if you do your numbers right, you will notice that in order to allow for all costs and for you to make profit on this deal, you really need to sell these townhouses at $575,000. However, the market does not allow that, as the current sale value sits at $530K for your townhouses.

– In essence, you should be paying only $120K per townhouse for land to make your margins, which justify the end sale value of $530K.

– It’s time to walk away as the asking price of land is too dear.

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About the Author

Property Developer | Educator | Entrepreneur Experienced in Development Management, Financial Modelling, Land Acquisiion and Development Finance.

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