When it comes to making good investments, property development is one that can often be a rewarding experience. Or it can be one of the most costly mistakes you can make. And the difference between them is how prepared you go into your project. A poorly prepared property development can be fraught with issues, run massively over budget, and fail to perform when you need it to.
So before you do anything, before you lay down any money and put plans into stone, here are some important considerations you need to make.
The Feasibility of the Site and Project
Before you do anything, you need an honest assessment of whether the project itself is actually viable. A feasibility study looks at the potential of the site against the costs and projected returns. It’s the foundation on which every subsequent decision should be made. If you’re making decisions based on assumptions rather than actual data, then you’re simply throwing money away.
What you can expect from a thorough feasibility assessment is to find out the land value, local demand, comparable sales and realistic profit margins. It will also throw out any constraint you might come up against, such as site contamination, access issues or infrastructure that can impact the viability of what you’re planning.
Planning and Zoning Restrictions
You need to understand what you can and can’t do with a site before you commit to purchasing or any property development plans. Zoning laws, height limits, setback requirements, heritage overlays and local planning policies will directly affect what can be developed and how. Assuming that approval will be automatically granted or even straightforward is an assumption that can cost you down the line.
Remember, planning processes take time and are often considerably longer than you might expect, especially for first-time developers, and you should always expect neighbours or local authorities to potentially extend timelines and add high cost to your plans.
Your Budget and the Real Cost of the Development
The purchase price of the land is only the starting point. Stamp duty, legal fees, holding costs, planning and design fees, construction costs, contingency allowance, financing costs and sales or marketing expenses all need to be factored into the budget.
When you’re looking at how much you’re spending on the property development, you need to use all the figures, not just the purchase price, to understand what it will cost you entirely and what profit you can expect to make.
Construction costs in particular can have a habit of increasing between the initial quote and the planning and building stages. And many people come unstuck by underestimating the size of the contingency fund they will need, and this can halt a project faster than anything else.
But factoring all the associated costs before you commit to anything means you have a more realistic idea of what you’ll need to pay for, so you can budget accordingly.
Site Selection and the Long-Term Impact
Not all sites are equal, and the one you choose will shape every aspect of what follows. Location affects demand, end values, and the type of development that will be the most successful. The orientation, topography and access affect design decisions and construction complexity. Then you need to consider proximity to infrastructure services and amenities, as they will have an effect on how the finished product will be received by buyers or tenants.
