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development feasibility Study

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Project Setup Made Easy

Project Setup: To set up your project, you need to input the project name, address, and relevant tax details like GST or VAT, depending on your location. Adjust the tax rate as needed, e.g., 10% in Australia or 15% in New Zealand. 33

Adding Property Details: Enter the property address, e.g., "3 Water Code, Revelry, Victoria," and use Google Maps for accuracy. 96

Currency Setup: Choose the appropriate currency symbol (e.g., dollar, pound) to format all numeric values in your project. 191

Adding Land Acquisition Costs

Understanding Acquisition Costs: Acquisition costs include legal fees, stamp duties, and other taxes associated with purchasing property. These costs are often different depending on your region. 00:00

Legal Fees: These are costs paid to a lawyer, solicitor, or conveyancer to handle the property purchase, including dealing with banks and other authorities involved. 34

Stamp Duties and Ad Valorem Tax: These are taxes levied on the property purchase, usually a percentage of the sale value. For example, in Victoria, Australia, this is 5.5%. 64

Accounting for Acquisition Costs: When entering acquisition costs, ensure to include all relevant expenses such as conveyancer fees, legal setup costs, and any applicable taxes. 126

Inputting Costs into Feasibility Tool: The video demonstrates how to input these costs into the feasibility tool, highlighting the importance of correctly entering percentages and values to reflect accurate acquisition costs. 191

GST and Margin Scheme: The video explains how to handle GST for commercial properties and when the margin scheme is applicable. It emphasises the need to check these settings for accurate cost calculations. 285

Estimating Construction Costs

Determine the Number of Units: Identify the total number of units you plan to develop, whether they are apartments, houses, or condominiums. This is the first step in estimating construction costs. 00:00

Calculate the Average Built Area: Determine the average built area per unit, whether in square meters or square feet. This metric is crucial for calculating the construction cost per unit. 31

Gather Construction Cost Estimates: Contact local construction sites or contractors to get ballpark figures for construction costs. This can be done per square meter/foot or as an overall estimate for the entire unit. 63

Input Costs into Feasibility Tool: Input the number of units, average built area, and construction cost per square meter or unit into the One Minute Feaso tool to get a construction cost estimate. 223

Consider Cost Variations: If you have more detailed information from similar projects or past experiences, use specific values for construction costs to refine your estimate. 322

Adjust for GST: If GST applies to your construction project, ensure that it is included in the cost calculations. This is particularly relevant for commercial properties. 385

Allocating Various Development Costs In Your Feasibility

Determine the End Value of Units: Research the selling price of similar units (e.g., two-bedroom apartments or three-bedroom townhouses) in the area. This helps in estimating the gross realization value (GRV). 00:00

Calculate Land Value per Unit: Input the land value, which gets automatically divided by the number of units to determine the land value per unit. 32

Construction and Consultants Costs: Determine construction costs and add a contingency percentage (e.g., 5%). Consultants' fees are usually calculated as a percentage of construction costs. 95

Council Contributions: Calculate council contributions, which vary based on local regulations. This is often a percentage of the land value. 376

Marketing and Legal Costs: Allocate costs for marketing, legal fees, and miscellaneous expenses. These are often estimated per unit. 696

Finance Costs: Calculate finance costs based on the loan-to-value ratio (LVR) or loan-to-cost ratio (LTC). This depends on whether the lender bases the loan amount on total development costs or gross realization value. 790

Estimating Project Timeline

Determine the Holding Period: Identify the time between purchasing the land and starting construction. This period includes obtaining planning approvals and consulting with professionals. 00:00

Finance for Land Holding: Understand the financing options for holding the land before construction begins. Different loans may apply for land purchase versus construction. 65

Leverage and Loan-to-Value Ratio (LVR): Consider borrowing money to maximize the return on equity by leveraging, which involves using loans to finance part of the project. 128

Construction Loan and Utilisation: Determine the maximum amount of money you can borrow for construction and how it will be drawn progressively during the project. 285

Calculate Interest During Construction: Include the time taken for construction and the period required to repay the lender, typically upon the sale of the completed units. 469

Buffer for Construction Time: Allow for extra time in your construction timeline to account for unexpected delays, ensuring accurate finance calculations. 532

Target Development Margin / Yield On Cost

Determine Target Development Margin: The target development margin is used to calculate the residual value of the land, which represents the maximum price you should pay for a site based on its development potential. 00:00

Calculate Residual Land Value: Set a desired development margin (e.g., 15%) for a small site, and the tool will calculate the maximum land price you can afford to pay to achieve this margin. 31

Negotiate Land Price: Use the calculated residual land value to negotiate with the seller, ensuring you meet your development margin target while accounting for all project costs. 96

Feasibility Analysis Purpose: The primary purpose of the feasibility analysis is to determine the maximum land price you can pay while still meeting your project’s financial goals. 127

Property Development Feasibility Summary

Developer Margin Calculation: The developer margin is calculated based on both costs and revenue, showing the profit margin on the project. 00:00

Profit Per Unit: The tool calculates the total profit per unit, which helps in understanding the profitability of each unit in the development. 30

Land Value vs. GRV: The summary compares the land value to the gross realization value (GRV) to assess the project's viability. 61

Construction Costs: Construction costs are compared to total development costs and GRV to ensure they are within a viable range (typically less than 40% of total costs). 94

Return on Equity: The return on equity is calculated based on the amount of borrowed money and the project's revenue, indicating the project's financial efficiency. 124

Calculating Return For Your Investors

Determine Capital Raising Needs: Estimate the total amount of money needed for the project, which will be raised from investors. 00:00

Round Up Total Costs: Round up the total project cost to a manageable figure, ensuring it is presentable and easy to justify to investors. 31

Set Value Per Share: Calculate the value per share based on the total amount to be raised and the number of shares issued. Adjust as necessary for investor presentation. 92

Subscription Value Calculation: Determine the subscription value, representing the amount of money to be raised from investors. Adjust based on your own contributions and the amount already invested in the project. 153

Investor Return on Equity (ROE): Calculate the return on equity for investors, which shows the percentage return they will make based on their investment. This differs from the overall project return on equity. 215

Investor Profit Share: Establish the profit share for investors, based on the total amount raised and their ownership percentage in the project. 247

Determine Minimum Investment Requirement: Set a minimum investment amount per investor, ensuring compliance with regulations and simplifying management by limiting the number of investors. 278

Adjust Share and Profit Distribution: Finalise the number of shares and the corresponding profit each investor will receive, ensuring transparency and clarity in investor communications. 375

Sensitivity Analysis

Introduction to Sensitivity Analysis: Sensitivity analysis helps assess the potential impact of changes in sales values and costs on your project's profitability. 00:00

Adjusting Sale Value and Cost Scales: Change the increments or decrements for sale values and costs to see how different scenarios affect project outcomes. 31

Impact on Profit per Unit: Analyze how changes in sales value and costs influence profit per unit, which provides insight into the project's financial viability. 92

Effect on Development Margin: The analysis also shows how development margins change under different scenarios, helping to identify the project's financial resilience. 155

Evaluating Return on Equity: The analysis considers the effect of different scenarios on the return on equity, especially when leveraging financing. 186

Worst-Case Scenario Planning: Use the sensitivity analysis to understand worst-case scenarios, ensuring the project can withstand potential adverse conditions. 279