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Real Estate Feasibility Study (Cost Side) - $1.2 Billion Developer Tells You How To Do One
There are two sides to real estate development feasibility study: The Cost Side & The Income Side. I am going to concentrate in this article on The Cost Side. Having told you that a feasibility study is vital when applying for finance, it is however, just another cog in the wheel of the property development process. To help you come to grips with the term, feasibility study, it might help you if I call it a, Financial Analysis, of all the costs and income revenue that tell you if your development will produce a profit. Where To Start? When you are at the very beginning of preparing a feasibility study - I mean when you are just thinking about buying the land on which you propose to develop a building, your initial cost figures are liable to be a bit 'rubbery.' They're general - they are not exact and can't be exact, because all you know at the beginning is the 'asking price of the land.' Hopefully the land cost will be less than the asking price after you complete the buying negotiation. Can you see that there is going to be a difference in just that first item of the feasibility study - land cost? OK - if you accept that, you'll also accept that the associated land costs will also vary. Items like conveyance costs, legal charges, stamp duty, adjustment of utility charges and other costs. That should demonstrate to you that a feasibility study goes through several stages. The first stage uses figures that are the 'best' figures you have available at the time. The last stage is when all your cost figures are firm and final. But as you are only at the stage of deciding to buy the land or not, you figures are "general and loaded with safety" - in dollar terms. Let's be clear about what I mean here. For the land cost you would use the full asking price and all the associated costs, at full calculation for your initial entry in the feasibility study. Then if you negotiated a lower price you are safe. If you first feasibility study shows a satisfactory profit return for the risk of doing the development, you will proceed and gain legal control of the land. Well, to gain control, you must have concluded a negotiation on the land sale price - so you have now "firmed up" on one of the cost items. Hopefully it is lower than, or the same as the figure you allowed in the feasibility study. In the first feasibility study you will allowed a figure for the fees of the design consultants. People like the architect, the engineer and so on. Well now you have to engage them to create the initial design for you and again this is a negotiation that will either be within your feasibility study allowance or not. The next major item in your feasibility study will be the constructions cost. If your development comprises ten town homes, that are aimed at the luxury end of the owner occupier market, your market knowledge may tell you that you should allow $180,000 per to town home or $1.8 million to build all ten. Your design team will have to design well within those cost parameters and after the initial design is complete in preliminary format, you will need to get a few master builders to give you a price. If you are well within the $1.8 million, then you may decide to leave the $1.8 million figure in your feasibility study. This would be smart if the buider's figure was say, $1.7 million. The extra $100,000 acts as a safety buffer as you are only pricing off non-detailed preliminary design plans. Now. let's say it's your intention to sell all these town homes at a profit, so you have allowed some marketing costs to cover sales commissions, brochure printing etc. in your feasibility study. At this stage the biggest figure is the sales commission and so you have been out talking to agents and so you have a good idea that your figures are OK. At this stage we have wrapped up all of the "major" costs except the finance costs or interest on you borrowed development finance. By now, hopefully you will have bought my e-book, and know how to go about seeking development finance the correct way and not the dumb way. So you will not only know the best interest rate, but more importantly, have the correct type of loan and on the correct "terms" - you know the small print stuff. At this stage everyone I teach wants to buy a software program so that they can get all the calculations done "easy like." Well I have a problem with that - I know, and believe, that for you to get to know your development intimately, you have to go to the trouble of doing the feasibility study figures manually - it is only adding, subtracting and multiplying some figures. It is not difficult and the benefit is that you get to "know" the importance and interplay of each figure on the end result, being profitability. So a simple spread sheet broken up into months on an XL is all you need. In month one you buy the land for $286,500 and associated costs of say, $21,700 so you enter a figure of $310 ($308,200 rounded up to $310,000 - you have added a bit of safety in this one item) Note: never use the full figure allways round up and take off the last three zeros - so $310,000 becomes $310l; $3,500 becomed $3.5 and $800 becomes $8. This makes it easier to read and creates less mistakes. You then spread the design costs across the page to reflect the negotiated deal you did with the designers. Then the construction costs - marketing costs and so on. You can divide these individual costs up into a many smaller items as you wish. But the real thing you are doing is setting out your best estimate of the flow of cash that is required from the Lender and also from your own equity funds - the Cost Cash Flow. Once you have these figures spread across the page you add then vertically for a total monthly figure - and also horizontally for each item total. Hopefully the big development cost total in the bottom right hand box is equal to the vertical and horizontal totals. It is - great; go to the top of the class. Earlier I mentioned that you will have concluded the terms of your development loan. Well, let's say that the Lender has agreed to lend you 80% of your costs. This means you have to provide 20% from your own capital resources. Having got the monthly totals you can now calculate 80% of each figure, because this is the amount on which you will pay interest. It is these figures that you now calculate interest on each monthly cash flow and arrive at a total cost of the finance for your development. You now add the total interest figure to the Cost Total and arrive at what we call the Total Capital Cost of your development. There are a total of about 44 item headings that make up the Cost Side of a Feasibility Study. Author & $1.2 Billion Developer, Colm Dillon, Has Written The Best Selling 'How-To' E-book, "Residential Development Made Easy," With Readers In All States Of The USA, Canada, Australia, New Zealand, UK, Ireland and 79 Other Countries Of His Independent Web Site, http://www.realestatedevelopmentcoach.com/ez
MORE RESOURCES: Batman’s Office and Secret Bathrooms—These Real-Estate Agents Have Seen It All The Wall Street Journal Real estate expert warns socialist mayoral candidate could trigger massive NYC exodus - Fox Business Office real estate wide open in Denver as vacancy rate hits 36 percent Colorado Public Radio Altadena’s rough real estate market: Slower sales, lower prices, lottery winner plucking up properties Los Angeles Times Erie County real estate transactions Buffalo News Real estate magazine reports Les Wexner as Blue Heron buyer The Martha's Vineyard Times 'Married to Real Estate' Stars Get Huge News after HGTV Cancellation Country Living Magazine NAR Real Estate Forecast Summit National Association of REALTORS® 20 Worst Housing Markets Facing Biggest Price Crash or Correction by 2026 Norada Real Estate Investments Residential lending shifts: Local credit unions gain ground, banks lose volume The Business Journals Real Estate agent speaks out as sheriff’s investigators search for missing foster mom fox5sandiego.com Central Mass. real estate transfers, Sunday, July 20 Worcester Telegram How Trump’s personal aesthetic is redefining White House décor: 'I picked it all myself' USA Today Future of malls: Arizona's retail centers evolve as customers' habits change The Arizona Republic Neal Communities to celebrate Palmera at Wellen Park grand opening on July 25 Sarasota Herald-Tribune Don’t Skip This Moving Day Step: What to Clean Before Handing Over the Keys Better Homes & Gardens I Tried Zillow’s New Aerial 3-D Search Tool, And I'm Obsessed Country Living Magazine Real Estate Property Transfers Spring Hill for June 23, 2025 Williamson Source Old Family Dollar demolished in Quincy Center. What will take its place? The Patriot Ledger New report documents that it's harder for Columbus and other Ohio residents to make rent The Columbus Dispatch Couple in California surrogate case also faces two lawsuits over real estate business practices NBC News International Buyers Purchased $56 Billion Worth of U.S. Homes from April '24 to March '25 National Association of REALTORS® Canadian psychologist Jordan Peterson sets up shop in the Valley, records show The Business Journals Real Estate Transfers ~ June 25, 2025 The Bedford Citizen Top Real Estate Stocks Fast Growth Stock Alerts - Explosive earnings growth Autocar Professional ‘Taken advantage of’: Real estate agent ripped off friends, church, and federal government WSOC TV New Hampshire the latest state to ban right-to-list agreements Real Estate News by RealEstateNews.com July Economist Snapshot: What Will the Big Beautiful Bill Mean for Commercial Real Estate and Housing? Urban Land Magazine Florida Real Estate: The Hidden Opportunity Amid Market Crash Concerns Norada Real Estate Investments Best Real Estate Stocks Group Insights For Smart Investments - Overwhelming profit margins PrintWeekIndia OT Real Estate Spotlight of the Week: 3234 KY 140 East The Owensboro Times Is Wheeler Real Estate Investment Trust Inc. a good long term investment - Rapid-fire capital growth PrintWeekIndia Real estate sales for Summit and Portage counties the week of May 27, 2025 Akron Beacon Journal Why these homeowners say the 15-year mortgage is the most underrated offering in real estate right now MarketWatch Tuscaloosa County home listings asked for the same amount of money in June – see the current median price here The Tuscaloosa News A New Perspective: Here Comes the Groom | Real Estate Insights Piedmont Exedra ‘Making more money than ever before’: Las Vegas real estate agents using loopholes to charge higher commissions Las Vegas Review-Journal RNR Real Estate Briefs – Texas & More Realty News Report Best Real Estate Stocks Exclusive Investor Stock Picks - Free Daily Trading Room Entry Autocar Professional Real estate transfers: 7/16 Toledo Blade How much did that house sell for? Deed transfers in Ocala/Marion: May 19-25, 2025 - Ocala StarBanner Top Stocks for Real Estate Investment AI Stock Forecasts - Free Investment Case Studies Autocar Professional Top Stocks for Real Estate Investment Premium Investor Signals - High-velocity capital appreciation Autocar Professional Bitcoin Is Draining The Value Out Of Real Estate Bitcoin Magazine Top Stocks for Real Estate Investment Free Market Trend Analysis - Lightning-fast capital gains PrintWeekIndia Best Real Estate Stocks Trusted Expert Guidance - Overwhelming financial success Autocar Professional Top Stocks for Real Estate Investment in India Premium Financial Forecasting Tools - Unmatched market performance PrintWeekIndia Founding Father John Hancock's home is on the real estate market in Boston. Take a look The Patriot Ledger Top Real Estate Stocks Fast Growth Stock Alerts - Phenomenal capital gains Autocar Professional Eric Adams Is Raking It in From Big Real Estate New York Magazine Real estate sales in Peoria, Tazewell and Woodford counties for July 19, 2025 Peoria Journal Star Mediterranean-style mansion in The Woodlands among priciest home sales week of July 6 (PHOTOS) The Business Journals New Valley mansion near Billionaire's Row lists for $13.5M The Business Journals Best Real Estate Stocks Expert Backed Stock Investments - Superior portfolio returns Autocar Professional Real Estate’s Big Gains From AI Morgan Stanley Bard College hires real estate advisor and broker to sell Simon’s Rock campus - The Berkshire Edge HGTV’s Egypt Sherrod Shares Cryptic Message After ‘Married to Real Estate’ Cancellation tvinsider.com Scammed, Shamed and Deepfaked: Real Estate Agents Speak Out on the $15M Crypto Con National Association of REALTORS® Top Real Estate Stocks Smart Money Stock Picks - Explosive earning power Autocar Professional |
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