Last issue I showed you how to go about finding a development site so hopefully you have taken some time to look for some possibilities. But how do you know if they are anything more than possibilities? Well as I said, Property Development is a matter of applying seven simple steps. So now you know how to go about Step 1 – Finding a Development Site, it is time to learn how to do Step 2 - Site Analysis.
Quick Calculation
Once you have found a site you need to be able to do a quick calculation so that you can assess whether or not it is worth spending more time on. You will need to know your basic costs in order to do a rough calculation such as land purchase cost, building costs, retail value once built, consultant costs. These costs are relatively easy to approximate and at this stage you are only jotting down estimates to see if is something worth pursuing. For example if saw a development site with approval for 6 Townhouse you would do a quick calculation to see if it may be profitable:
6 Townhouses
Income = $3,000,000
Land costs = $900,000
Building costs = $1,200,000
Consultant costs = $50,000
Stamp duty = $16,000
Selling fee’s = $90,000
Profit = $744,000
Check out the local council
Once you have done a rough costing and you know that there is profit potential in the development then it is time to take other matters into consideration such as council guidelines and zoning. The local council is a great source of information. If the site is already DA approved then a lot of the work has been done already. The architect and engineer who did the approved plans may be able to provide valuable information.
Another area that you will need to research is any environmental factors that may have an impact on the success of the development such as access to water, sewerage, telecommunications and power. These can be costly if not already provided. This is the stage where you will have to take a look at the actual site by visiting it so that you get to see anything that may not be visible on aerial maps or drawings such as power lines that may run through the site. You will need to look for such things as are there any heritage issues in the area, is the site liable to flooding, are there any easements on the land, is it going to be easy to drill into the ground or is it made of rock.
* Water
* Sewerage
* Telecommunications
* Power
* Flood issues
* Easements
* Caveats
* Soil type
* Rates or taxes owning
* Heritage issues
Demographics of an area are really important
Demographics of the area will also have a huge impact on the development. You will need to know who will buy in the area, what type of housing is needed, is there a shortage of certain types of dwellings, is the area predominantly single people or couples, families or elderly people? These answers will all have an impact on what you build, how many bedrooms you will need, what size houses are most likely to sell, and therefore have a huge impact on your profits as you need to be selling something that the area requires.
What is happening in the area?
Whilst it is important to check the current market it is also important to check out anything that may affect it in the future such as planned infrastructure. This will give you a better idea of what to build. By finding out the demographics and the future planned infrastructure you are then able to build properties that you will have no problem selling and as this is where your profit lies. Doing a site analysis is one of the most important steps in property development. You want to make sure that you project suits local requirements and therefore targeted at the right market. Continued market research will allow you to see what areas are experiencing a growth and which area is experiencing a decline so that you are not developing in an area that it is going to be difficult to sell. By checking out the local real estate market, you will be able to see how long it is taking properties to sell in the area you are looking to develop in. This will give you a good indication on how quickly you will be able to sell and again, how quickly you will make your profits. But I will focus more on selling at step 7 – selling.
What are my choices?
The main two types of sites are DA approved or Raw. A raw site has no planning approved and based on local council zoning guides, is up to you to research and decide what you can put on the site. A DA approved site has a lot of the work done already and with plans approved, there is a lot less that you need to do as architect and engineer plans will have already been drawn up. If you wish to make a slight variation to the DA then this is possible and may be accomplished by applying to the local council.
This is the stage where you fully analyse and get acquainted with the site. You will also need to look for anything that may be owing on the site such as rates or taxes. Council will have a big impact on what you can build so you will need to familiarize yourself with the terminology. Jump on their website and browse around the different planning maps and zoning guidelines for the area. You will be able to find out from council, information such as the minimum size per site, any street frontage requirements, any specific building materials that must be used, and the development plan for the area. Once you have determined through a quick calculation that the development is worth looking into further and you have done your market research on the area and researched the site, then the next step is to run a detailed feasibility with actual cost of everything involved to see what your profits will be. Negotiating is a key and a major influence on the profitability of any development but I will be telling you more about Step 3 – Financial Feasibility, in the next issue.
Log onto www.cdevelop.com.au to download free reports and find out more about the courses we offer on Property development. Call 02 9371 4799 or email info@ccorp.com.au for more information.
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Comment posted March 9, 2010 @ 3:34 am
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Comment posted April 3, 2010 @ 12:23 am
Hi guys.
I went to the Adelaide seminar and found it extremely interesting.
Some one rang me last week to get feedback re the seminar.
Thanks for the opportunity.
If I find a site can your group crunch the numbers without the specific location provided. (I can nominate which state)
How many developments can ccorp handle at a time?
Thanks for your help,
Pelly.
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Comment posted April 13, 2010 @ 7:46 pm
Excellent information Carly. I find those back of envelope feasability studies quick and easy to do. It means you can look at a lot of potential sites in a short period of time and quickly build up a list of sites that need further looking at.
I spend quite a bit of time familiarising myself with the council web site and their zoning requirements. The outcome of this investigation further influences what is feasable and what is not.
Cheers
Glen
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Hillary
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Carly
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