You’ve found a potential development site. The numbers look interesting. You’ve started dreaming about what you could build.
There’s just one small problem. You have absolutely no idea what it’s going to cost. So, naturally, your first instinct might be to pick up the phone and call a builder.
“Hi. I’m looking at buying a development site. I haven’t bought it yet, I don’t have any plans, I’m not completely sure what I’m building, but could you tell me exactly how much it’s going to cost?”
You can probably see the problem.
That doesn’t mean construction costs should be ignored until after you buy. Far from it. Build costs are a critical part of your feasibility, and getting them badly wrong can destroy the viability of a project.
The trick is knowing when to speak to builders, what information to ask for and how accurate your numbers actually need to be at each stage of the process.
Phase One: You’re Brand New and Don’t Know What You Don’t Know
If you’re brand new to property development, one of the biggest challenges is that you often don’t know what you don’t know. You may not yet understand the terminology, the construction process or even the questions you should be asking.
At that point, trying to obtain detailed pricing from builders is probably premature. Builders are generally busy, and there is very little meaningful information they can give you if you don’t yet have a site, plans, a clear development strategy or a reasonably defined end product.
You also need to remember that a builder you contact today may become an important long-term relationship later, so your first interaction ideally shouldn’t involve asking them to spend hours pricing a project that may never exist.
What you really need at this early stage is an order-of-magnitude cost. You’re not trying to work out whether the construction will cost $923,750. You’re trying to establish whether it is likely to be closer to $700,000, $1 million or $1.5 million.
There are a few ways to start building that knowledge. Construction cost guides, such as the BMT Construction Cost Table, can provide indicative pricing ranges for different types of residential construction.
At the other end of the spectrum, visiting display homes and looking at project-home pricing can give you a sense of what more standardised, repeatable housing products cost.
Neither figure will necessarily reflect exactly what you will eventually pay. Industry construction cost guides can tend towards the more conservative end of the spectrum, while project-home pricing generally reflects highly systemised, relatively cookie-cutter construction.
As a result, using something around the middle can be a practical approach for an early feasibility. It won’t be perfect, but at that stage it doesn’t need to be. You’re simply trying to work out whether the development strategy has a fighting chance.
Phase Two: Work Out What You’re Actually Building
Before you start having meaningful conversations with builders, you need to get much clearer on your development strategy and the type of product you’re trying to create.
A duplex?
Townhouses?
Apartments?
A knockdown-rebuild?
And, just as importantly, where are you planning to build it? Because saying, “I’m building a duplex” tells us almost nothing about the likely construction cost.
You could build a relatively basic product in an affordable outer suburb where buyers expect practical finishes and value for money, or you could build a luxury architectural duplex overlooking Sydney Harbour. Technically, both projects are duplexes, but the construction costs could be worlds apart.
This is why you can’t separate construction costs from your target market.
Once you identify the locations where your development strategy actually makes financial sense, you need to understand the local demographic.
Who is buying the finished product?
What are they willing to pay?
What level of finish do they expect?
There’s no point installing imported marble, premium appliances and designer tapware if buyers in that market won’t pay you any more for the finished property. Equally, building the cheapest possible product in a premium owner-occupier market may save money during construction but cost you far more when it comes time to sell.
The market ultimately dictates the product, and the product starts to dictate the construction cost.
Phase Three: Become an Area Expert
Once you’ve narrowed down both your development strategy and your target location, your conversations with builders become far more useful. This is the point where you can start becoming an area expert and learning what similar projects are actually costing in the market where you intend to operate.
Look at development applications, recently completed developments and properties currently being marketed. Find projects that are similar to the type of development you want to undertake and then identify the builders involved.
These are the builders you should start getting to know, because they are already operating in your target area and building the kind of product you’re interested in.
Instead of calling a builder and asking a vague question such as, “How much does it cost to build a duplex?”, you can now have a much more informed conversation. You might say something along the lines of:
“I noticed you recently completed the project at XYZ Street. I’m looking at developing in the area and considering something similar. If you were building that same project again today, roughly what would the construction cost be?”
Suddenly, the conversation is based on something real.
The builder knows the project, they understand the level of finish and they know the challenges involved in delivering it.
From your side, you may also be able to find the floor plans through the development application or previous marketing material. Once you understand the approximate floor area, you can start working backwards to calculate a rough construction cost per square metre.
However, the square-metre rate isn’t really the most valuable piece of information. What you’re ultimately trying to understand is what level of product that construction cost created.
Was it a relatively basic investor-grade finish? Was it a mid-range owner-occupier product? Or was it a premium architectural build?
That information is far more valuable than blindly plugging a generic square-metre rate into every feasibility you run.
Your Numbers Should Improve as the Deal Progresses
The important thing to understand is that your construction cost estimate should evolve as the project progresses.
When you’re first learning, you might work with broad industry ranges.
Once you’ve identified your strategy, you refine those numbers based on the product and location.
Once you become familiar with a particular market, you start using real projects as benchmarks.
And once you have a genuine site under consideration and enough information for a builder to provide meaningful input, your numbers can become more accurate again.
That’s the progression.
The biggest mistake is expecting precision far too early. You don’t need a builder to prepare a detailed quote for every property that appears on realestate.com.au at 10 o’clock on a Saturday night. What you need is enough knowledge to recognise whether an opportunity is broadly viable and to know when the project has progressed far enough to justify involving a builder.
Good builders can become incredibly valuable members of your development team, particularly when you work in the same areas and deliver similar projects over time. The more prepared you are when you approach them, the more useful those conversations are likely to be.
Do your homework, understand your market and narrow down your product before asking for detailed input.
You’ll get better information, the builder is more likely to take you seriously, and your feasibility numbers will become far more reliable than simply typing into Google:
“How much does it cost to build a duplex?”
There’s just one small problem. You have absolutely no idea what it’s going to cost. So, naturally, your first instinct might be to pick up the phone and call a builder.
“Hi. I’m looking at buying a development site. I haven’t bought it yet, I don’t have any plans, I’m not completely sure what I’m building, but could you tell me exactly how much it’s going to cost?”
You can probably see the problem.
That doesn’t mean construction costs should be ignored until after you buy. Far from it. Build costs are a critical part of your feasibility, and getting them badly wrong can destroy the viability of a project.
The trick is knowing when to speak to builders, what information to ask for and how accurate your numbers actually need to be at each stage of the process.
Phase One: You’re Brand New and Don’t Know What You Don’t Know
If you’re brand new to property development, one of the biggest challenges is that you often don’t know what you don’t know. You may not yet understand the terminology, the construction process or even the questions you should be asking.
At that point, trying to obtain detailed pricing from builders is probably premature. Builders are generally busy, and there is very little meaningful information they can give you if you don’t yet have a site, plans, a clear development strategy or a reasonably defined end product.
You also need to remember that a builder you contact today may become an important long-term relationship later, so your first interaction ideally shouldn’t involve asking them to spend hours pricing a project that may never exist.
What you really need at this early stage is an order-of-magnitude cost. You’re not trying to work out whether the construction will cost $923,750. You’re trying to establish whether it is likely to be closer to $700,000, $1 million or $1.5 million.
There are a few ways to start building that knowledge. Construction cost guides, such as the BMT Construction Cost Table, can provide indicative pricing ranges for different types of residential construction.
At the other end of the spectrum, visiting display homes and looking at project-home pricing can give you a sense of what more standardised, repeatable housing products cost.
Neither figure will necessarily reflect exactly what you will eventually pay. Industry construction cost guides can tend towards the more conservative end of the spectrum, while project-home pricing generally reflects highly systemised, relatively cookie-cutter construction.
As a result, using something around the middle can be a practical approach for an early feasibility. It won’t be perfect, but at that stage it doesn’t need to be. You’re simply trying to work out whether the development strategy has a fighting chance.
Phase Two: Work Out What You’re Actually Building
Before you start having meaningful conversations with builders, you need to get much clearer on your development strategy and the type of product you’re trying to create.
A duplex?
Townhouses?
Apartments?
A knockdown-rebuild?
And, just as importantly, where are you planning to build it? Because saying, “I’m building a duplex” tells us almost nothing about the likely construction cost.
You could build a relatively basic product in an affordable outer suburb where buyers expect practical finishes and value for money, or you could build a luxury architectural duplex overlooking Sydney Harbour. Technically, both projects are duplexes, but the construction costs could be worlds apart.
This is why you can’t separate construction costs from your target market.
Once you identify the locations where your development strategy actually makes financial sense, you need to understand the local demographic.
Who is buying the finished product?
What are they willing to pay?
What level of finish do they expect?
There’s no point installing imported marble, premium appliances and designer tapware if buyers in that market won’t pay you any more for the finished property. Equally, building the cheapest possible product in a premium owner-occupier market may save money during construction but cost you far more when it comes time to sell.
The market ultimately dictates the product, and the product starts to dictate the construction cost.
Phase Three: Become an Area Expert
Once you’ve narrowed down both your development strategy and your target location, your conversations with builders become far more useful. This is the point where you can start becoming an area expert and learning what similar projects are actually costing in the market where you intend to operate.
Look at development applications, recently completed developments and properties currently being marketed. Find projects that are similar to the type of development you want to undertake and then identify the builders involved.
These are the builders you should start getting to know, because they are already operating in your target area and building the kind of product you’re interested in.
Instead of calling a builder and asking a vague question such as, “How much does it cost to build a duplex?”, you can now have a much more informed conversation. You might say something along the lines of:
“I noticed you recently completed the project at XYZ Street. I’m looking at developing in the area and considering something similar. If you were building that same project again today, roughly what would the construction cost be?”
Suddenly, the conversation is based on something real.
The builder knows the project, they understand the level of finish and they know the challenges involved in delivering it.
From your side, you may also be able to find the floor plans through the development application or previous marketing material. Once you understand the approximate floor area, you can start working backwards to calculate a rough construction cost per square metre.
However, the square-metre rate isn’t really the most valuable piece of information. What you’re ultimately trying to understand is what level of product that construction cost created.
Was it a relatively basic investor-grade finish? Was it a mid-range owner-occupier product? Or was it a premium architectural build?
That information is far more valuable than blindly plugging a generic square-metre rate into every feasibility you run.
Your Numbers Should Improve as the Deal Progresses
The important thing to understand is that your construction cost estimate should evolve as the project progresses.
When you’re first learning, you might work with broad industry ranges.
Once you’ve identified your strategy, you refine those numbers based on the product and location.
Once you become familiar with a particular market, you start using real projects as benchmarks.
And once you have a genuine site under consideration and enough information for a builder to provide meaningful input, your numbers can become more accurate again.
That’s the progression.
The biggest mistake is expecting precision far too early. You don’t need a builder to prepare a detailed quote for every property that appears on realestate.com.au at 10 o’clock on a Saturday night. What you need is enough knowledge to recognise whether an opportunity is broadly viable and to know when the project has progressed far enough to justify involving a builder.
Good builders can become incredibly valuable members of your development team, particularly when you work in the same areas and deliver similar projects over time. The more prepared you are when you approach them, the more useful those conversations are likely to be.
Do your homework, understand your market and narrow down your product before asking for detailed input.
You’ll get better information, the builder is more likely to take you seriously, and your feasibility numbers will become far more reliable than simply typing into Google:
“How much does it cost to build a duplex?”
