Step your way into Property Investment: Step 3
People need somewhere to live. You can profit by meeting that need. To do this successfully requires research and following a proven formula. Below are two ways to make money from property:
- Subdividing and developing an existing property.
- Buying, subdividing and developing a new property.
This four part series will outline the formula to guide your through Property Investment. If you already own a property that is suitable for subdividing, congratulations! You’re halfway there.
STEP THREE: DETERMINING THE VIABILITY OF A ONE INTO TWO PROPERTY DEVELOPMENT
Estimated costs and how to determine the maximum price to pay for a development site
- Your Aim: Subdivide, build & sell.
- Market: Downsizers, couples, average size families & investors.
- End price: Determined as $630,000 to $660,000 (calculations based on $645,000)
- Purchase & Subdivision Costs:
- Stamp duty $ 25,400
- Fees & incidentals $ 2,000
- Finance application costs $ 1,000
- Interest $ 20,000
- Demolition $ 11,000
- Plans, reports & approvals $ 5,000
- Subdivision $ 24,000
- Building & Marketing Costs:
- Turnkey build of 2 new dwellings $500,000
- Marketing & selling costs $ 24,000
- Contingency $ 5,000
- Professional advice $ 2,000
- Profit margin $200,000 (18.34% on cost)
- Maximum price you can pay for the original property is $471,000 before impacting your profit (based on a $645,000 selling price for each new dwelling).
Using the figures above will assist you to determine if your project is likely to be profitable. The two critical figures are the price that you buy at and the price that you sell at. If you pay too much for the land, it is unlikely that you will be able to reduce the subdivision costs or build costs to maintain your profit. Similarly you need to be realistic with your selling price.
The good news is that you can control the price you buy at and by factoring in a healthy profit margin you are in a position to meet the market if needs be when selling.
Research and planning are your keys to success. With a sound strategy and a knowledge of the likely costs you can work backwards to determine how much to pay for the site. Similarly research and consulting with real estate agents will help you to determine a likely sell price or end value for your project.