# How to calculate feasibilty

Discussion in 'Development' started by Martinez22, 23rd Jul, 2016.

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1. ### Martinez22Well-Known Member

Joined:
21st Jun, 2015
Posts:
248
Location:
Perth
My exisiting loan is \$374k, property value is \$410k now with this market.

If i spent \$50k on subdividing the 710 block into 3 (rezoning is r20/r40) and end values for units are \$415k in the area. How on earth do I calculate the profit with the intention to sell all the units?

We will be doing a build and retain, so build on the back block first, sell then demolish house to build the other two. Does the bank base the security on the newly divided land values or the values on the proposed finishing values ie \$415k. No matter how hard I try calculate this I keep getting stuck. Can anyone please help?)

2. ### D.T.Specialist Property ManagerBusiness Member

Joined:
13th Jun, 2015
Posts:
7,987
Location:
Most forget, but remember to include stamp duty on the purchase and gst & sales agent fees on the sale. These can make over 100k difference which turns your 20% project into a break even project.

3. ### John BoneWell-Known Member

Joined:
9th Feb, 2016
Posts:
62
Location:
Melbourne
First di a simple test, your property is worth \$410k, add the subdivision cost and it is \$460k. Divide by 3 and you have a land cost of \$153k then add the cost of construction which I am going to assume is \$200k so a total cost of \$353k each and you are going to sell for \$415k. So a margin of \$62k each. Now deduct GST, holding costs, Interest cost and selling costs and there is not going to be a lot left over that you could call a profit.
This is a simple financial feasibility but you need to get off your butt and work out the real numbers. If you have done that, then the numbers should be telling you whether it works or it doesn't, and if it doesn't then move on.

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