Getting your feasibility as accurate as you possibly can is a big part of being a successful Property Developer. Otherwise you risk taking on a development project where the return is too low. Even worse, any profit you might make gets swallowed up very quickly if things don't quite go according to plan.
Most people focus heavily on the costs side of their feasibility - site acquisition, build cost, site works etc. And don’t get me wrong, all of these numbers are hugely important in your feasibility, but…
There's another side to your feasibility, and it's one where making the wrong assumptions is really going to hurt.
Site Yield
Determining the site yield is a crucial part of your property development feasibility. Now, by following my Rapid Elimination Method you will already have some of the necessary information to determine this, and your due diligence research should give you the rest.
At its simplest, site yield is where you take a site and determine how many smaller pieces you can break it up into. If you're subdividing the site into smaller parcels of land, knowing the right parameters generally turns it into a fairly simple X divided by Y equation.
If you're planning to build dwellings on those smaller lots, there are other things that need to be taken into consideration. Because surprising as it may seem, it's not always as simple as more dwellings equals more profits.
Let's start at the beginning, and look at the various factors you need to research in order to determine site yield.
The Site
Taking a look at the site itself is a big chunk of the Rapid Elimination Method. Some details are relatively easy to determine, such as:
But, there are other things to take note of, including whether or not there's an existing dwelling, where this existing dwelling is on the site and what condition it's in. The size, number and location of any trees on the site can affect the yield too.
The Rules
From looking at the site itself, you need to move on to the various planning requirements that affect what you might be able to do with the site.
If you've done your research and are already an Area Expert in this particular council, then the site's zoning should immediately give you an idea of what you're likely to be able to achieve in terms of yield. You also need to check for any overlays on the property, and if they exist, what impact they will have.
Depending on your state, you will need to check either Council or State requirements for the zone in terms of:
Other elements such as driveways, car parking and waste management also need to be taken into consideration, as they can take up considerable space on the site and this needs to be deducted from space available for building dwellings.
While longer-term it will be up to your Architect or Designer to do a deep dive on all this information and come up with a development design that meets all the requirements, you can still get a rough idea yourself for your project feasibility. This is what's often referred to as a massing diagram.
If you've cultivated a relationship with a friendly Town Planner, they can be an enormous help in this area too. Many of them are happy to take a quick look at a site for free, on the understanding that if the deal goes through they'll be the ones looking after it for you. Knowing the inside workings of the local council can be a big help, particularly in Victoria.
Is That It?
Now you've collected all the information you need, does it still come down to pulling out your calculator and doing a simple X divided by Y equation, taking into consideration all the extra parameters involved in building, to get the most dwellings possible?
That's where a really skilled Developer knows better. Because while it's easy to assume that pushing the limits to get the maximum density you can out of the site is the way to go, that may not be the highest and best use of the space.
For example, say the demographics in your area want luxury 4 bedroom detached 2-storey dwellings. Now, you might only get 4 of those on the site but you could squeeze 6 x 2 bedroom attached 2-storey dwellings. There are two factors at play here.
First, sales revenue. If you build what the market wants, then the market will pay top dollar for it. Build something else, and it will still sell, but it won't be top dollar and it can potentially take a while. That hit to your sales revenue and the extra holding costs may mean you actually end up earning less than you expect.
Secondly, build cost. It will almost always cost more to build more dwellings. More floor space, more bathrooms, more kitchen appliances - more everything. So now not only has your sales revenue taken a hit, it's potentially going to cost more to produce those extra dwellings.
So what's the bottom line here in order to get the biggest bang for your buck on your development site?
Do the research!
Know the maximum you're likely to be allowed to build, know what your market wants and what they'll pay for it, then do multiple versions of your development feasibility allowing for different potential outcomes in terms of yield.
The version with the biggest profit wins!
Most people focus heavily on the costs side of their feasibility - site acquisition, build cost, site works etc. And don’t get me wrong, all of these numbers are hugely important in your feasibility, but…
There's another side to your feasibility, and it's one where making the wrong assumptions is really going to hurt.
Site Yield
Determining the site yield is a crucial part of your property development feasibility. Now, by following my Rapid Elimination Method you will already have some of the necessary information to determine this, and your due diligence research should give you the rest.
At its simplest, site yield is where you take a site and determine how many smaller pieces you can break it up into. If you're subdividing the site into smaller parcels of land, knowing the right parameters generally turns it into a fairly simple X divided by Y equation.
If you're planning to build dwellings on those smaller lots, there are other things that need to be taken into consideration. Because surprising as it may seem, it's not always as simple as more dwellings equals more profits.
Let's start at the beginning, and look at the various factors you need to research in order to determine site yield.
The Site
Taking a look at the site itself is a big chunk of the Rapid Elimination Method. Some details are relatively easy to determine, such as:
- area of the site
- frontage
- slope across the site
- aspect (which way it's facing)
But, there are other things to take note of, including whether or not there's an existing dwelling, where this existing dwelling is on the site and what condition it's in. The size, number and location of any trees on the site can affect the yield too.
The Rules
From looking at the site itself, you need to move on to the various planning requirements that affect what you might be able to do with the site.
If you've done your research and are already an Area Expert in this particular council, then the site's zoning should immediately give you an idea of what you're likely to be able to achieve in terms of yield. You also need to check for any overlays on the property, and if they exist, what impact they will have.
Depending on your state, you will need to check either Council or State requirements for the zone in terms of:
- setbacks
- site coverage
- open space
- building height
Other elements such as driveways, car parking and waste management also need to be taken into consideration, as they can take up considerable space on the site and this needs to be deducted from space available for building dwellings.
While longer-term it will be up to your Architect or Designer to do a deep dive on all this information and come up with a development design that meets all the requirements, you can still get a rough idea yourself for your project feasibility. This is what's often referred to as a massing diagram.
If you've cultivated a relationship with a friendly Town Planner, they can be an enormous help in this area too. Many of them are happy to take a quick look at a site for free, on the understanding that if the deal goes through they'll be the ones looking after it for you. Knowing the inside workings of the local council can be a big help, particularly in Victoria.
Is That It?Now you've collected all the information you need, does it still come down to pulling out your calculator and doing a simple X divided by Y equation, taking into consideration all the extra parameters involved in building, to get the most dwellings possible?
That's where a really skilled Developer knows better. Because while it's easy to assume that pushing the limits to get the maximum density you can out of the site is the way to go, that may not be the highest and best use of the space.
For example, say the demographics in your area want luxury 4 bedroom detached 2-storey dwellings. Now, you might only get 4 of those on the site but you could squeeze 6 x 2 bedroom attached 2-storey dwellings. There are two factors at play here.
First, sales revenue. If you build what the market wants, then the market will pay top dollar for it. Build something else, and it will still sell, but it won't be top dollar and it can potentially take a while. That hit to your sales revenue and the extra holding costs may mean you actually end up earning less than you expect.
Secondly, build cost. It will almost always cost more to build more dwellings. More floor space, more bathrooms, more kitchen appliances - more everything. So now not only has your sales revenue taken a hit, it's potentially going to cost more to produce those extra dwellings.
So what's the bottom line here in order to get the biggest bang for your buck on your development site?
Do the research!
Know the maximum you're likely to be allowed to build, know what your market wants and what they'll pay for it, then do multiple versions of your development feasibility allowing for different potential outcomes in terms of yield.
The version with the biggest profit wins!
