When looking at a property development, the cost of the land and the development/construction costs seem the most obvious. But what other key costs should you consider to get a development off the ground?

Planning & Design

A development project needs to be properly designed and have planning before you can put a spade in the ground. This process can take several months (or even years!), and can take a site from hero to zero in the process.

As part of the planning consent, you may have to agree a S106 payment, a Community Infrastructure Levy (CIL), and provide affordable housing either on or off site. These costs are only going to have detrimental affects on the profit of your development so make sure you include contingency for these in your initial appraisal, and bottom these costs out as soon as possible.

‍

Surveys & Searches

Before embarking on your construction (or buying the land), you should get surveys done to assess the risk of contamination, flooding etc. This will determine whether the site is suitable for building on and allow you to put in place a budget for remediation works. Searches will tell you whether the site is connected up to existing utilities or whether there is anything passing within your land that may need to be relocated as part of the development. Sometimes utility companies will fund a certain element of these costs.

‍

Demolition & Remediation

If you are building on a brownfield site or land with an existing building on it, then you will need to demolish the existing building and may need to remediate any contamination issues. Remediation contaminated land can be extremely expensive, so make sure you get your searches and surveys done first!

‍

Professional Fees

There are a lot of people involved in construction a building – architects, planners, structural engineers, project managers, to name but a few! – and they will all need to be compensated for their work. A budget of at least 15% of the construction costs should be allowed for in the first instance, which can then be adjusted as negotiations and plans progress.

‍

Marketing

Marketing is so important for the end value of your development, but the costs associated with it can often be overlooked and easily forgotten. The identity of the end user/purchaser of the site will determine what marketing strategy you should follow, but it goes without saying that you should plan your strategy BEFORE the building reaches practical completion.

‍

Debt Costs / Cost of Capital

Assuming your development is being funded by a third party, then you will also need to consider the costs associated with drawing down this money (legal documents, arrangement fees etc), and any ongoing costs. If you take out a loan then you will have interest payments, commitment fees, and the cost of a project monitor. If you have raised equity from an investor then they may want to receive a coupon or take a share of the profits.

‍

Contingency

Projects don’t always go according to plan (as much as we would like them to!). Delays in the supply chain and unforeseen costs can result in having to increase the development cost budget. Including a contingency provides a buffer and an increased level of comfort to avoid having to do this. The amount of contingency will vary depending on the type of project, but in most cases will not be less than 10%.

‍

Thank you so much for reading. If you want more content, join our free membership in The EiP Academy – http://academy.excelinproperty.com/join

‍