Perhaps you have stood at the boundary of a property and wondered whether or not the site was viable for development?
Sites with old warehouse/manufacturing vegetation might be well suited for redevelopment into home or a brand new commercial facility, maybe something else. But how would you know?
When it is an existing commercial property is actually a reasonable guess that it is zoned for professional but if there is residential uses in very close proximity then it might be zoned residential/mixed use. Very first call; the local council land zoning maps. Either give the local council a call or get onto your smartphone or tablet and also have a look yourself.
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If you are looking at a house block (or two) in an area with many apartment blocks in close up proximity then it will probably be zoned home. A quick call to the neighborhood council can confirm this.
Because most people are enthusiastic about residential development I will give attention to residential « quick assessment ». You may have noticed about « back of the envelope » feasibilities; well that’s what I would do now. Note that people have their own way of doing things, this is my way and you might not agree with it; which fine though. This works for myself and that’s why I personally use it.
Enables say you experienced a 2, 1000 sqm block of land and there are 4 or 5 storey apartment blocks close to you. To myself which means that you could develop about 4, 000 sqm of gross floor area. In NSW Australia we have a brand new Apartment Design Guide that stipulates minimum apartment sizes. Using an average 2 bedroom and one bathroom apartment as typical, I might allow 85 sqm of gross space on the floor for each apartment. This results in a potential development yield of about 47 apartments, which I would round up to 50.
Now I’m going to work backwards, starting from the gross realisation. Lets assume 2 bedroom and 1 bathroom apartments sell for $800, 000 each. You should know your market to get this done. This means the potential development has a major realisation of $40 million.
From the gross realisation I actually would deduct my profit margin that I wanted. Lets say its 25%. I divide the $40m by 1 . 25 to get $8m profit. I know now that my total development cost is $32m.
Remember we are achieving this on the back of the envelope so it is high level. My next step is to consider building cost; the price tag on land and every other cost that may be applicable to a project.
From this process I am buying a residual land value therefore i need to know structure and other. I actually begin with other.
Through experience I assume that other development costs are the cause of 30% of the total development cost therefore i divide $32m by one. 3 to provide myself other development costs of $7. 4m and a remaining value of $24. 6m for structure and land.
Next the construction cost is deducted. Depending on in which you are located the construction cost will vary. I’m going to use $280, 000 as the construction cost for a 2 bedroom and one bathroom apartment. This particular results in a total construction cost of $14m.
We deduct the $14m from the $24. 6m and finish up with a residual land value of $10. 6m. If the selling price of the land is below this your site could be feasible. When the site is not for sale and you want to approach the home owner, you know approximately what you could pay for the site and still make money.
Remember this is exceptionally high degree and you also must embark on an effective feasibility before making any financial commitments.
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