How to do a) quick, b) preliminary and c) professional feasibility assessment

Discussion in 'Development' started by ottg, 29th Dec, 2015.

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  1. thatbum

    thatbum Well-Known Member

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    At the moment, a simple to finance duplex development that also has an existing cashflow component. Like an existing duplex pair or a retain/subdivide.
     
  2. Sackie

    Sackie Well-Known Member

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    @thatbum Oh ok cool. Is it really 1 in 50,000 or similar difficulity to find such deals?

    Cheers.
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I think the reason why it's so hard to pin down accurate construction costs is that it is soooooo design dependant.

    Let me outline a scenario: a 728sqm triplex block which can have 422sqm of dwelling on it - ie 140sqm each. The easiest way to estimate the cost is at a sqm rate of $1500/sqm turnkey inc a reasonable amount of siteworks. This gives you $633k and that is a very easy way to guestimate how much it will cost for a triplex in Perth. For this reason you need to allow 5% contingency on the construction amount to cater for natural movement in the price. Then another 5% contigency on siteworks/headworks. A triplex of that size in Perth should cost around $620-675k all up turnkey including siteworks/headworks. Yes that is a $55k variation and the reality is that most will be around $650k but you need to have that buffer in your calculations.

    Now, it may end up costing $30k less if you choose a poor design or $30k more if you go a bit OTT with the design. This is simply design not specification I'm referring to. A square house with no eaves and tiles will be cheaper to construction than a house with a lot of building on boundary, complicated roof structure, lots of articulation to walls etc.

    When using the sqm rate it doesn't really factor in alfresco roofs, porticos, front courtyard fencing as they aren't counted into the sqm allowance of a block. So you always need to have that extra contingency.

    This would be an example of a cheaper construction cost development - simple rooflines (not necessarily a good thing), no render, cheap landscaping
    28 (A B or C) Birchley Crescent Balga WA 6061 - House for Sale #120773337 - realestate.com.au

    Somewhere in the middle and probably closer to higher but due to rectangle regular shaped block it's a cheaper construction than the one below 38a Tangmere Way Balga WA 6061 - Villa for Sale #120820065 - realestate.com.au

    Higher construction - alfresco roof, front courtyard wall, heavily articulated walls and roof to make angled boundary comply 32 Coolham Way Balga WA 6061 - House for Sale #120885445 - realestate.com.au

    Example one is cheapest but is the type of end product I'd avoid. End value reflects cheap construction.
     
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  4. Aconis

    Aconis Well-Known Member

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  5. ottg

    ottg Well-Known Member

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    Thank you @Westminster for your response it makes it a lot clearer.
    Your examples given aligns with the Rawlinson book and as you said it’s all in the design quality:
    Rawlinson stated:
    1. Residential multi unit – low density (2 storey, full brick & tiled) in Perth
    Medium standard per sqm at $1735-$1870
    High standard per sqm at 1955-2110​
    2. Residential house – single unit
    1.1 Project House:
    Standard finish full brick per sqm at $875 - $945
    Medium standard full brick sqm at $945-$1020​
    1.2 Individual house
    Medium standard finish full brick per sqm at $1610-$1735
    High standard finish full brick per sqm at $2300-$2480
    Prestige standard finish full brick per sqm at $3090-$3330​

    Question:
    What means a project house and how does it differ from an individual house?
    How ell does the other figures align with what you actually experience in the market?
     
  6. ottg

    ottg Well-Known Member

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    If we look at the following scenario as someone mentioned rezoning of Kalamunda zone R25/R30.
    Thus let’s assume a splitter block in below medium house price area.
    A large block +700sqm with a rundown dwelling at $580k
    Construction costs for 3 brm dwellings is average $907 sqm and for 4 bedroom dwellings $858 sqm (got this from the developer websites)
    There were more 4 bdr dwellings built/sold and priced 3 bedroom ($390k) and 4 bedroom ($450k) houses.
    Some average lot sizes 350m2 sell for $255k size.
    A average 4 bedroom dwelling sized 180m2 will cost $154k.

    Questions:
    a. The costs from the developer’s website I assume is for a project house?
    b. As this is a splitter block, the 2nd block will get the dwelling so what other costs do you need to include for a ball park figure?
    c. Will it be better just to sell off the splitter block with no improvements?
    d. If you reno the original dwelling say Bathroom & kitchen (80k) will it improve the figures if you look at both blocks now?
     
  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    A project house is one like a builder advertises and is often designed for a standard sized residential block. An individual house is a custom designed house.

    Grouped dwellings ( triplexes and above) can fall in between the 2 prices as they are generally custom designed to the shape and size of the block. Sometimes duplexes can be project designs or custom.
     
  8. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Which website? The BMT one of the feasibility calculator on BeDeveloper's website?

    a. If it's a development website then I would assume it's talking about grouped dwellings rather than single dwellings so that are between project and custom range/price.
    b. for a retain you need add about $30 for strata + headworks + siteworks). This is a sum that has been mentioned often in the past by WA people but I've not done a retain and build.
    c. yes it might be or might not be. Look at similar end values for just the land and compare.
    d. $80k is a lot to spend on a renovation. I believe the rule of thumb is to spend less than 10% of the value of the house. I would spend between $30-50k on a front house so that it doesn't pull down the value of the rear house.
     
  9. ottg

    ottg Well-Known Member

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    I'm looking for a few people that has completed a dwelling construction in any Australian metropolitan area. I'm currently testing Qwikfeaso and as you know most feasibility calculators are exactly just that: an estimate. But the question is how do I know that the assumptions the calculator is making, given my inputs, is accurate enough to be used and not giving false outcomes (i.e is the error 10%, 15%, >20%+ ???).

    One way is by testing against real world cases and I thought that if you are interested I would like to use your construction financials & choices made as a case study and benchmark. This will be for my personal use only but will share my finding & analysis with you.

    If you are interested I would like to use your development as a comparison to see how accurate/reliable is the feasibility calculator that I'm using. Just send me a private message and I can explain how we can go about it. This entails sending you a template with a list of choices, quality options, quantities, default room sizes for completion. Note that I will later also need your email address for communique and attachments.
     
  10. Cactus

    Cactus Well-Known Member

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    Wow that's picky. I find 1 in 5 properties I look at would stack up. But then that's on back of envelope and I have not bought them just running numbers. Ultimately if I'm a buyer it would come down to the best one on the market for return with acceptable risk in the council I'm comfortable in. Got to finish existing projects before I can go again.
     
  11. Drgonzo

    Drgonzo Well-Known Member

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    It's pretty easy, it's basically an IRR calculation on a spreadsheet we spent about half an hour on this at uni. The more difficult part is accurately predicting construction costs and determining appropriate amounts for risk.
     
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  12. ottg

    ottg Well-Known Member

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    @Drgonzo agree - the cashflow forecast and calculating the internal rate of return and the return on investment is simple. Its all about the actual estimated expenses without spending too much time on the details. If you have done it before, for similar developments in the same area, then again its simple because you have a baseline to work against. When you new to an area, have some idea what the buyers are looking for, what local market prices are and know the supply & demand status you still not there. When you start estimating costs as a newbie, even using the Rawlinson Handbook as a guideline you still not there, but getting closer.

    From my observations I believe the QwikFeaso can be of great help as it has prices build in from quantity surveyors & margins for quality and risk - but the only way to be sure is testing it against actual and similar completed projects. Depending of your strategy, if the goal is a 20% profit target and you miss it by ~20% you may just as well go and purchase from a developer off the plan, without the pain.

    If you have completed a 1-2 developments (not important if successful or not) do you want to participate in the testing?
     
  13. Drgonzo

    Drgonzo Well-Known Member

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    I'm a quantity surveyor by trade but I haven't done any developments myself.
     
  14. ottg

    ottg Well-Known Member

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    @Drgonzo - once my initial feasibility shows its a goer, then using a professional quantity surveyor is definitely on my list.

    Note my initial invite: "If you have completed a 1-2 developments (not important if successful or not) do you want to participate in the testing?" is an open invitation for participants.
     
  15. Big Daddy

    Big Daddy Well-Known Member

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    " A triplex of that size in Perth should cost around $620-675k all up turnkey including siteworks/headworks."

    Does this figure include titles and demolition? And is this for a medium spec house or high spec?
     
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  16. Scott No Mates

    Scott No Mates Well-Known Member

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    Every builder, developer and consultant that I have worked with have had copies.
     
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  17. Big Daddy

    Big Daddy Well-Known Member

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    I posted up about 15 pages of Rawlinsons Const Guide 2015 somewhere on this site. Cant remember where
     
  18. Anton79

    Anton79 Member

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    Do you have an excel version of you feasibility tool ?
     
  19. ottg

    ottg Well-Known Member

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    I have tried a a search for rawlinson & your name on the site but nothing comes up! About your 15 pages - was that about comments/lessons learned about rawlinson or content pages, as I already have the book
     
  20. AndrewTDP

    AndrewTDP Well-Known Member

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    Keep in mind setbacks and car parking are just as important as floor area.

    Had a client who wanted 24 units on his site. It worked from a back of envelope calculation. But it required 3 levels of basement car parking.

    6 townhouses got him a better return due to much lower building cost and higher sale prices.
     
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