How To Assess A Home 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 plants might be well suited for redevelopment into home or a new professional facility, maybe something else. But how would you know?



If it is an existing commercial property it can a reasonable gamble that it is zoned for professional but if there is residential uses in very close closeness then it might be zoned residential/mixed use. Very first call; the local council land zoning maps. Either give the local authorities a call or get onto your mobile phone or tablet and have a look yourself.

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If you are looking at a house block (or two) in an area with many apartment blocks in close proximity then it will probably be zoned home. A fast call to the neighborhood council can confirm this.

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

Enables say you got a 2, 1000 sqm block of land and there are four to five storey apartment blocks close to you. To me personally which means that you could develop about 4, 000 sqm of gross floor area. In NSW Sydney we have a new Apartment Design Guideline that stipulates minimal apartment sizes. Using an average 2 bedroom and one bathroom apartment as typical, I would allow 85 sqm of gross space on the floor for each apartment. This results in a possible development yield of about 47 flats, which I would round up to 50.

Now Now i'm going to operate backwards, starting from the gross realisation. Enables assume 2 bedroom and 1 bathroom apartments sell for $800, 000 each. You need to 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. Lets 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 carrying this out on the back of an envelope so it is quite high degree. My next thing is to consider building cost; the cost of land and every other cost that may be applicable to my project.

From this process I feel looking for a residual land value therefore i need to know building and other. I begin with other.

From experience I assume that other development costs take into account 30% of the entire development cost therefore i separate $32m by 1. 3 to give myself other development costs of $7. 4m and a staying value of $24. 6m for structure and land.

Next the construction cost 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 one bathroom apartment. This particular results in a total construction cost of $14m.

I deduct the $14m from the $24. 6m and end up with a residual land value of $10. 6m. If the selling price of the land is below this your site could be feasible. If the site is not for sale and you want to approach the house owner, you know approximately what you could pay for the site and still generate income.

Remember this is exceptionally high degree and you also must embark on an effective feasibility before making any financial commitments.

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