The way to Assess A Property Development Site Rapidly

[My Blog]

Maybe you have stood at the boundary of a property and wondered whether or not the site was viable for development?

Sites with old warehouse/manufacturing plant life might be suited to redevelopment into home or a new industrial facility, maybe something else. But how would you know?



If it is an existing professional property it's a reasonable guess that it is zoned for professional but if there is certainly residential uses in very close proximity then it could be zoned residential/mixed use. 1st call; the local council land zoning maps. Either give the local council a call or get onto your smart phone or tablet and also have a look yourself.

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If you are searching at a house block (or two) within an area with many apartment blocks in close proximity then it is likely to be zoned home. A quick call to the local council can confirm this.

Since most people are enthusiastic about residential development I will give attention to residential "quick assessment". You might have noticed about "back of the envelope" feasibilities; well that's what I would do now. Note that people have their own way of doing things, this is my way and you might not agree with it; that is fine though. This particular works for myself and that's why I personally use it.

Allows say you got a 2, 1000 sqm block of land and there are four to five storey apartment blocks close to you. To myself which means that you could develop about 4, 000 sqm of gross floor area. In NSW Quotes we have a brand new Apartment Design Manual that stipulates minimal apartment sizes. Taking an average 2 bedroom and one bathroom apartment as typical, I might allow 85 sqm of gross floor space per apartment. This results in a possible development yield of about 47 apartments, which I would round up to 50.

Now I am going to operate in reverse, starting from the gross realisation. Allows assume 2 bedroom and 1 bathroom apartments sell for $800, 000 each. You should know your market to get this done. This means the potential development has a major realisation of $40 million.

From the gross realisation I actually would deduct my profit margin that I wanted. Enables say its 25%. I divide the $40m by 1 . 25 to get $8m profit. I now know that my total development cost is $32m.

Remember we are doing this on the back of the envelope so it is quite high degree. My next step is to consider construction cost; the cost of land and every other cost that may be applicable to my project.

From this process I was buying a residual land value therefore i need to know structure and other. I actually start with other.

From experience I presume that other development costs are the cause of 30% of the entire development cost so I separate $32m by 1. 3 to give me other development costs of $7. 4m and a staying value of $24. 6m for construction and land.

Following the construction value is deducted. Depending on where you are located the construction cost will vary. I'll use $280, 000 as the construction cost for a 2 bedroom and 1 bathroom apartment. This particular results in a total construction cost of $14m.

We deduct the $14m from the $24. 6m and ending up with a residual land value of $10. 6m. If the asking price of the land is below this your site could be feasible. When the site is not for sale and you want to approach the property proprietor, you know roughly what you could purchase the site and still generate income.

Remember this is exceptionally high level and you also must embark on a proper feasibility before making any financial commitments.

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