Property developers are very good at talking about cost.
Purchase price. Construction costs. Consultant fees. Finance costs. Holding costs. Council fees. Marketing costs. Contingency. Then, just when you think you’ve covered everything, along comes a previously undiscovered fee that appears to have been invented specifically for your project.
While cost is an important concept for property developers to calculate and consider, it's only one part of the puzzle. And focusing purely on cost can sometimes lead to some very expensive “savings”.
There’s a well-known Warren Buffett quote that says "Price is what you pay, value is what you get." For property development, there’s a useful third element to add to that equation: worth.
In a nutshell, cost is what you pay. Value is what you receive in return. Worth is how many times you can use that knowledge, skill, relationship or system again long after the original bill has disappeared into your accounting software.
And that distinction can completely change the way you, as a property developer, look at an expense. Cost and value are only the beginning. Worth takes a little more thought.
Let’s use education as an example.
Imagine you spend $30,000 on a Property Development Course or mentoring program. That’s the cost. There’s no mystery there. Your bank balance will provide a very accurate reminder if required.
You then use what you learn to complete a development that makes you $100,000. That $100,000 is the value you received from your investment.
If the story ended there, you could compare the $30,000 you paid with the $100,000 you made and decide whether the investment stacked up.
But what happens if you use exactly the same knowledge on the next project?
Perhaps that project makes another $100,000. And then another development produces another $100,000.
Suddenly, the original knowledge hasn’t produced $100,000. It has contributed to $300,000 across three projects.
That is where worth starts to become much more interesting than cost.
Of course, no course, mentor or consultant can guarantee a particular profit on your next project. Property development stubbornly refuses to be that cooperative. Markets move, builders change prices, councils take their time, interest rates do interesting things and sometimes the site you loved turns out to have a sewer running through exactly the spot where you wanted to put the building.
But knowledge has one enormous advantage over many other development expenses: once you have genuinely learned something, you may be able to deploy it repeatedly.
The invoice happens once. The benefit potentially keeps going.
The Cheapest Contractor May Cost You More
The same thinking applies when selecting contractors and consultants.
Say you’re developing a property and need a contractor for the next stage of the project. Contractor A quotes $20,000 but can’t start for four weeks. Contractor B quotes $24,000 and can start tomorrow.
If you only compare the quotes, Contractor A wins. Easy. You’ve saved $4,000 and can spend the afternoon feeling smug about your superior negotiating skills.
Except the project is now sitting idle for another month. If your interest, rates, insurance and other holding costs add up to $7,000 over that period, your $4,000 “saving” has just cost you $3,000.
Suddenly Contractor B starts looking considerably more attractive.
This is why good Feasibility work is about more than entering the cheapest possible figure into every cell of a spreadsheet. You need to understand the relationship between price, time, risk and outcome.
The cheapest option is only cheap if it doesn’t create another cost somewhere else. And property development has an extraordinary ability to hide that “somewhere else” until three months later.
What Is Certainty Worth?
Professional advice is another good example.
A town planner might charge several thousand dollars to assess a site before you buy it. A building consultant might charge you to investigate structural or construction issues during Due Diligence. A finance broker experienced in property development finance may cost more than someone whose usual workload is straightforward residential lending.
It’s very tempting to ask, “Can I get this cheaper?” Sometimes you can, and sometimes you absolutely should.
But the more useful question is often, “What does this help me avoid or achieve?”
If a planner identifies an issue that stops you buying a site that would otherwise have cost you $200,000, the $3,000 advice fee suddenly looks like one of the better bargains you’ve had that week.
Likewise, an experienced consultant who knows how to resolve an issue in two phone calls may seem expensive when you look at the invoice, but very cheap compared with someone who charges less per hour and takes three weeks to arrive at exactly the same answer.
Paying less for someone to learn on your project is not necessarily a saving.
Worth Is Often About Repeatability
Where this gets really interesting is when the thing you are paying for can be used repeatedly.
Excavation is valuable, but once the excavator has finished your site, you cannot fold the hole up neatly and take it with you to your next development.
Knowledge is different.
Learn how to carry out a stronger property development feasibility study, and you can use that skill across hundreds of opportunities. Learn how to understand the local buyer demographic, and that insight can influence the product you design on future developments.
Learn how to negotiate better purchase terms, manage risk, recognise bad sites earlier or structure deals more effectively, and those lessons can continue adding value well after the original cost has been forgotten.
Sometimes the biggest value will come from the project you don’t do.
If better Due Diligence helps you walk away from a deal that looked fantastic until you discovered the planning problem, drainage issue, impossible construction cost or wildly optimistic resale figure, you may never see a profit appear in your bank account.
But avoiding a $150,000 mistake is still a reasonably productive day at the office.
Stop Asking Only “What Does It Cost?”
None of this means property developers should stop watching costs. Quite the opposite. You still need to understand every dollar going into the deal, because “I’m focusing on value” is not a particularly convincing explanation when your feasibility has blown out by $300,000.
But cost should not be considered in isolation.
That’s the difference between cost, value and worth.
And if you want to put the theory to the test without worrying about the cost side of the equation, PDN has an easy starting point.
Try our free property development course, the 7-Step Property Development Formula.
The cost is zero.
We’ll let you decide what the value is.
And once you’ve used what you learn a few times, you can tell us what it was worth.
Purchase price. Construction costs. Consultant fees. Finance costs. Holding costs. Council fees. Marketing costs. Contingency. Then, just when you think you’ve covered everything, along comes a previously undiscovered fee that appears to have been invented specifically for your project.
While cost is an important concept for property developers to calculate and consider, it's only one part of the puzzle. And focusing purely on cost can sometimes lead to some very expensive “savings”.
There’s a well-known Warren Buffett quote that says "Price is what you pay, value is what you get." For property development, there’s a useful third element to add to that equation: worth.
In a nutshell, cost is what you pay. Value is what you receive in return. Worth is how many times you can use that knowledge, skill, relationship or system again long after the original bill has disappeared into your accounting software.
And that distinction can completely change the way you, as a property developer, look at an expense. Cost and value are only the beginning. Worth takes a little more thought.
Let’s use education as an example.
Imagine you spend $30,000 on a Property Development Course or mentoring program. That’s the cost. There’s no mystery there. Your bank balance will provide a very accurate reminder if required.
You then use what you learn to complete a development that makes you $100,000. That $100,000 is the value you received from your investment.
If the story ended there, you could compare the $30,000 you paid with the $100,000 you made and decide whether the investment stacked up.
But what happens if you use exactly the same knowledge on the next project?
Perhaps that project makes another $100,000. And then another development produces another $100,000.
Suddenly, the original knowledge hasn’t produced $100,000. It has contributed to $300,000 across three projects.
That is where worth starts to become much more interesting than cost.
Of course, no course, mentor or consultant can guarantee a particular profit on your next project. Property development stubbornly refuses to be that cooperative. Markets move, builders change prices, councils take their time, interest rates do interesting things and sometimes the site you loved turns out to have a sewer running through exactly the spot where you wanted to put the building.
But knowledge has one enormous advantage over many other development expenses: once you have genuinely learned something, you may be able to deploy it repeatedly.
The invoice happens once. The benefit potentially keeps going.
The Cheapest Contractor May Cost You More
The same thinking applies when selecting contractors and consultants.
Say you’re developing a property and need a contractor for the next stage of the project. Contractor A quotes $20,000 but can’t start for four weeks. Contractor B quotes $24,000 and can start tomorrow.
If you only compare the quotes, Contractor A wins. Easy. You’ve saved $4,000 and can spend the afternoon feeling smug about your superior negotiating skills.
Except the project is now sitting idle for another month. If your interest, rates, insurance and other holding costs add up to $7,000 over that period, your $4,000 “saving” has just cost you $3,000.
Suddenly Contractor B starts looking considerably more attractive.
This is why good Feasibility work is about more than entering the cheapest possible figure into every cell of a spreadsheet. You need to understand the relationship between price, time, risk and outcome.
The cheapest option is only cheap if it doesn’t create another cost somewhere else. And property development has an extraordinary ability to hide that “somewhere else” until three months later.
What Is Certainty Worth?
Professional advice is another good example.
A town planner might charge several thousand dollars to assess a site before you buy it. A building consultant might charge you to investigate structural or construction issues during Due Diligence. A finance broker experienced in property development finance may cost more than someone whose usual workload is straightforward residential lending.
It’s very tempting to ask, “Can I get this cheaper?” Sometimes you can, and sometimes you absolutely should.
But the more useful question is often, “What does this help me avoid or achieve?”
If a planner identifies an issue that stops you buying a site that would otherwise have cost you $200,000, the $3,000 advice fee suddenly looks like one of the better bargains you’ve had that week.
Likewise, an experienced consultant who knows how to resolve an issue in two phone calls may seem expensive when you look at the invoice, but very cheap compared with someone who charges less per hour and takes three weeks to arrive at exactly the same answer.
Paying less for someone to learn on your project is not necessarily a saving.
Worth Is Often About Repeatability
Where this gets really interesting is when the thing you are paying for can be used repeatedly.
Excavation is valuable, but once the excavator has finished your site, you cannot fold the hole up neatly and take it with you to your next development.
Knowledge is different.
Learn how to carry out a stronger property development feasibility study, and you can use that skill across hundreds of opportunities. Learn how to understand the local buyer demographic, and that insight can influence the product you design on future developments.
Learn how to negotiate better purchase terms, manage risk, recognise bad sites earlier or structure deals more effectively, and those lessons can continue adding value well after the original cost has been forgotten.
Sometimes the biggest value will come from the project you don’t do.
If better Due Diligence helps you walk away from a deal that looked fantastic until you discovered the planning problem, drainage issue, impossible construction cost or wildly optimistic resale figure, you may never see a profit appear in your bank account.
But avoiding a $150,000 mistake is still a reasonably productive day at the office.
Stop Asking Only “What Does It Cost?”
None of this means property developers should stop watching costs. Quite the opposite. You still need to understand every dollar going into the deal, because “I’m focusing on value” is not a particularly convincing explanation when your feasibility has blown out by $300,000.
But cost should not be considered in isolation.
- Ask what you are receiving in return.
- Ask what risk is being reduced.
- Ask what time is being saved.
- Ask whether the benefit applies only to this project or whether the knowledge can be used on the next project, and the one after that.
That’s the difference between cost, value and worth.
And if you want to put the theory to the test without worrying about the cost side of the equation, PDN has an easy starting point.
Try our free property development course, the 7-Step Property Development Formula.
The cost is zero.
We’ll let you decide what the value is.
And once you’ve used what you learn a few times, you can tell us what it was worth.
