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A feasibility study is a detailed investigation into whether a project will be successful. In a nutshell, it determines the viability of your property development project.
An expert feasibility study includes details about the potential market, competition, and the financial viability. Large companies employ teams of data collectors, analysts, site visitors, and report writers. It feels way too complex for someone new to even get started.
Beginner’s guide
So... what is the typical content of a feasibility report for property development? What would I do to get started?
The content of a feasibility report for property development typically includes the purchase price, sale price, permits and building cost, time frame, assumptions, contingency, risk and options.
Purchase price is the amount that the developer pays to buy the land. You should also set aside some money for legal costs, stamp duty, settlement costs, and bank fees.
Sale price of the dwellings you build will be what you can expect to collect from real estate. You should be able to collect information from realestate.com.au and make some basic assumptions.
Permits cost is the expense required to get all necessary approvals from governing bodies. It cost roughly 8% of the construction cost to cover consultants and permit fees.
Building costs are what it costs to build the building. To start, get a local square meter rate for the building, add underground works (civil works) and landscaping.
Speak with a few LOCAL builders and friends and ask them what the likely cost of the three is. You'll get your ballpark figure after you average out their comments.
Risk and options represent possible actions based on different outcomes in order to mitigate potential problems. As you gain more experience, you will learn more about the risk you face, and cost of solving the problem.
Allow 10% of the building cost as contingency money. The more experience you get, the clearer you will be and the less contingency money you will need to allow for.
Time frame & multiple strategies
Time frame is how long it will take to complete the proposed project from start to finish. Time will impact finance costs and the return on investment rate.
Spending a year to earn $500,000 is different from spending 3 years to earn $800,000, for example.
It's worth comparing two scenarios to see the return on investment before deciding the project direction. For example, compare the ROI for four homes on a site with the ROI for three homes, considering the time difference versus the gross profit difference.
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Disclaimer: We assume no responsibility or liability for any errors or omissions. The information is for general purposes only with no guarantees of completeness, accuracy, usefulness, or timeliness. You must engage a suitable consultant for your specific situation.
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