How to budget to develop a property

In this video James Dewane talks about the costs involved in developing a property. Watch to get info on how to forecast against movement in property prices and the real costs of having a project manager.

James Dewane standing in bear brick alcove

Setting a Budget to Develop a Property

How do we budget for our project? Well, there are a few figures that you need to get your head around. Firstly, what is the property worth to buy? Consider all the ancillary costs. You’ve got your legal fees, stamp duty and anything else that goes with purchasing the property.

Secondly, what’s the development cost going to be? To get a good idea of what the development costs are going to be you’ll need to take a walk around with either a builder or surveyor. Somebody experienced in dealing with properties that need development. Unless of course you have experience yourself.

And then thirdly, we need to know what the property is worth when you come to sell it. Or rent it. What sort of margin can you pull from it? Because that will tell you what the profit is that you can reconsider the property.

You also need to consider the cost of working slowly on the project. You know many of us when developing properties tend to do the work ourselves, and are happy to do so. We don’t involve the tradesmen, but the cost of that is the project can run slower than you anticipated. Not only is your time money, but you’re paying the mortgage, you’re paying any associated loans at the same time, and all before you have seen any income from the property at all. So you need to take this into consideration when you're budgeting for the property.

The other thing you need to think about is sticking to your plan. We can sometimes get wrapped up in the project ourselves and start to impose our own personal feelings on the property. Buying fittings that perhaps we would like, but we need to remember is that our tastes may not be the customer's too. And if you’re buying fancy light fittings or fancy taps, kitchen fittings or appliances that you might like you may very well be spending money that is unnecessary because whoever buys the property is going to come in and put their own stamp on the property anyway. Most people do.

Lastly, you need to be aware of accounting for the value of property increasing. Because we all know the property will increase over time, or in fact it could decrease. And while you’re developing your property prices may very well go up, they might slow, or, as we know from previous experience, they may very well go down. The last thing you need to do is be stuck with a figure in your mind of what you’re going to realise from the property that isn’t realised, that doesn’t develop for you. So just account for the value you add to the property. And this of course is more important for you’re using the profits from your development to purchase other properties because you may end up having to buy higher, as well as selling higher.

 

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