Property Development Cost Examples – Dual Occupancy Development Project
Have you ever thought about doing a side by side dual occupancy development and wondered what kind of costs were involved?
Well, stick around because in this article I break down all the different costs that you need to consider long before you commit to a development project of any kind. Including some property development cost examples.
By the end, you’ll have a clear understanding of all the project costs you need to consider. Costs you’ll need to consider when forecasting or doing a feasibility. And at what point you’ll need to have the money on standby ready to inject.
And go here if you want to know how much money you need to start a property development.
Let’s hop into the article.
Alright … for simplicity I have broken the costs down into 5 categories.
I’m going to break down each individually. I’ll provide the property development cost examples that you can expect in each category.
And if there is anything specific you need to consider I shall share that with you as well.
Now before we get too far into it I need to make an important disclaimer.
All of the cost examples provided are for the purpose of the exercise only. Your own costs are going to vary dependant on countless project variables.
These figures are my best guess based on my own experience which I’m happy to share with you guys. I want to give you a leg up on your own development journey.
But remember these property development cost examples represent a different time and most likely in a different area. So it is critical that you still do your own research.
When talking about purchase costs we are also talking about the settlement costs. So the purchase price plus all the other relevant costs incurred to settle the property.
Purchase costs might look something like this;
The amount of stamp duty payable is calculated on a sliding scale.
Starting at 1.4% for properties with a dutiable value is 25k. Going up to 5.5% for properties with a dutiable value of 960k and above.
Purchase price: The purchase price is pretty self-explanatory it’s the negotiated purchase price.
We’ve assumed $800,000 for the purpose of the exercise.
The conveyancing is your solicitor’s fee for managing the settlement of your purchase with the vendor and their bank.
Stamp duty is a duty or tax charged by the State Government. It is for certain types of transactions such as selling property.
It is paid by the purchaser of these assets and is payable to the state revenue office.
The statement of adjustments refers to any rates, taxes, current leases or outgoings that will need to be adjusted.
This ensures that the seller only pays the portion up to the date of settlement. And that you are only liable for the portion from this date.
These are all the costs you will incur from the day you sign the contract until project completion. Excluding sales and marketing and the holding and construction costs.
A projects list of planning costs might look something like this. But certainly not limited to;
Keep in mind every property development project is going to be different. Each will have countless variables that need to be considered.
Not all costs listed are going to be relevant for every project, but these should get you heading in the right direction when thinking of planning costs for your project’s feasibility.
I’ve listed the main ticket items you need to consider with the miscellaneous representing an educated guesstimate of the many smaller costs incurred over the journey.
Costs such as building insurances and your gas and water bills over the duration of the project.
It would be easy to ignore these types of costs, but they do add up over the journey and need to be considered to get an accurate financial picture of your potential project.
These are the sales and marketing costs that need to be considered when crunching the numbers on a dual occupancy development project.
Again, every project is going to be different. Here are some of the more common costs you can expect.
If you are doing a feasibility on your development site, you need to also remember your sales agent commissions/fees on your projected sales figures.
These can vary significantly between agencies, agents and location. As a guide, you’re looking at anything from 1.5%-2.5% of what you end up selling your dwellings for.
Depending on the location and what marketing package you go with this can cost you anywhere from 2k to 10k.
All things being even this should be very simple. It’s the agreed fixed contract price you have negotiated with your selected builder. Plus a small contingency for additional earthworks if required.
At Little Fish we work on 5% for the contingency.
Generally speaking, once your property development project is out of the ground as long as you get everything right on the front end and you are working with the right builder variations shouldn’t be an issue. You should be in clear skies.
Obviously, your builder has no idea what is under the ground until they start digging. It’s not uncommon for them to hit rock which incurs additional excavation and concrete costs than what they have allowed.
So you need to allow some contingency to avoid any expensive surprises. If the site still stacks up with the contingency then it’s game on. If not then you need to move on to the next one.
Holding costs are the bank interest you will need to pay for the money you have borrowed to fund the project.
This can be a little more complicated to work out as there are a lot of things you need to consider.
Below are the assumptions for the purpose of the exercise:
- 20-months project duration
- 6-month settlement period
- 10-month build
- 5% interest rate.
Something to consider when you are structuring your property development finance is capitalised interest.
This is when the interest due on a loan is added back to the Capital sum. Rather than being repaid.
This essentially means it is calculated over the duration of the project and paid at the end which is good for your cash flow.
So, the million-dollar question. How much does a dual occupancy development project cost?
Drum roll …
Obviously, every property development project is going to be different which I’ve mentioned several times thought-out the video.
To give you an idea here’s what the final numbers might look like based on my figures;
Remember there are many other site and project-specific costs you will need to consider. Costs that will only be relevant to your property development and its unique circumstances.
For example. You might need to consider rent that you need to pay for the duration of the construction if you are developing your current place of residence.
Even rent loss if the existing dwelling is currently being rented out.
Another cost that may or may not be relevant to your site is what’s called “open space contribution”. This is is generally applicable to development sites over two dwellings.
This can be a big one so it’s definitely something you need to figure out and consider before committing to a project. And once you make some profits, you’ll need to consider capital gains tax.
In the end, it’s all about finding property development sites that stack up financially after all costs have been considered.
This limits surprises significantly reduces your real estate development risk and gives you every opportunity to achieve your forecasted profits.
It might sound easy, but I can tell you from experience it’s incredibly difficult.
The impact can be huge to your bottom line if something slips through the net. So keep learning knowledge is not only power, but it’s also money.
Well, that’s it, some property development cost examples to get you heading in the right direction.
If you are interested in learning about the costs and timing for a three dwelling corner site click here.
Until next time happy developing!