Basic Feasibility: 25 November 2022
It has been over four years since I started into property development (PD) following a corporate career, two ‘stints’as an expat (Asia and the Middle East), and then cemented by having my wings clipped, as I became trapped as agrounded kiwi within NZ borders due to COVID 19.
Over the past couple of years, I have had some fantastic personal dealings with people on this Facebook group.Mostly, people have said they have had value out of the journey that I shared. As the macroeconomic environment is going from bad to worse, and I am able to keep going; I thought I would now share some snippets, as I progress through houses 16, 17, and 18. These snippets are through my eyes as a solo, bespoke back-yard developer. This is no one else’s story, so it comes with the Kirsty Merriman view. It is not advice – merely things that havestayed with me as things worth cogitating over and maybe valuable to others. There is/was not a guide book for my PD when I started and a serious lack of band-aids and antiseptic and a precipitous cliff at my toes most of the time.
This does not replace my YouTube channel (https://www.youtube.com/@steel_capped) which chronicles my current development. Rather it is an offering (and exposure) of content that may be of value to others within this communitywho are in a similar position to me. Maybe I can deliver one every couple of weeks or so?
Additionally, anything I write about will have ‘evidence’ behind it but due to sensitivities (mostly mine), I will not reference the evidence and blank-out any identification.
01: The most basic of feasibility.
Please do a basic feasibility BEFORE you sign up to anyone – this community should have enough information within it to help new starters. What do you want to do? How much will it either sell or rent for? How much is your land worth? What is the full design cost, the full infrastructure and compliance cost, the finance cost, and the full build cost (including site works and contingency). Is the number positive, or is the rental yield good enough (including your land value) to make it worth doing?
It was on the 11 of April 2018 when I did my most basic feasibility for a project. Thank-goodness I did it and here it is copied directly out of the email conversation I was having with a potential consultancy firm (attached as a photo also is the full email content with sensitivities XXXed out):
Cost per unit
- “220K / 6 units = 36 K (for design, planning and management) ***assuming a slightly lower density grouping incorporating a green space
- 15K for water and power connections
- 25K for council “contributions”
- Roughly 250,000 for a 100m2 unit that is energy efficient, simple and enduring
- Total = 326,000 per unit that will rent for around $520 per week (low end) and it excludes the land value (which would be 1/6 of council land value of 720K = 120K)
- THUS 326 + 120 = 446K which would mean a negligible margin on current market property values (say 550 – 600K) and it could even mean the yield is on the low side using current market values (of course, increasing the density changes the financial dynamic but also it may change the living dynamic). Note: the land value for me is negligible as I purchased it 11 years ago but I think it is prudent to use current market value from a finance perspective.”
The reason I am posting this snippet is because I have been there. Many get sucked into the unitary plan development story: “you are sitting on a goldmine,” well maybe you are not!
A most basic feasibility will allow you to see if you have a margin that is worth taking the risk with. If you don’t have your own cash – you need to convince someone to fund you. If you get a funder – they want a safety margin. Youcan also see from my verbatim copy and paste that I had not really considered finance or contingency. Needless to say, this scenario did not proceed. Had it done so, I may not have been able to complete the project. The strain ofthe COVID environment would have seen it under threat (especially if I had pre-sold it).
