Cost Analysis
Hey guys....
here's a quick question that I know you all could answer. I getting my feet wet as a developer after doing several S/F rehab deals. I would like to know ALL the costs involved. It is not as simple as build for, say, 100k and sell for 150k.....I'm sure. Generally speaking, what costs are involved from start to finish. Thanks in advance for your help!
Gino,Cost will vary according to where you are building. My general rule % wise is 25%-land,50%- labor&materials,10%-marketing,15%-profit. Each project will vary.
To MichaelChandler's reply, I would add that if the property needs some type of municipal approval (eg, subdivision or land development), there will be costs involved for engineering work and for a range of due diligence items, legal, application/permit fees, debt service and other "soft" costs.
In my area the general rule of thumb for developing residential subdivisions is 1/3 land cost, 1/3 development cost, 1/3 profit. Of course developing properties and the associated costs are alot more complicated then this.
Gino,
It is impossible to come close to even giving you a remotely accurate answer on your question. All land is unique and development costs will be unique for each development, even if they are directly across the street from each other. Don't rely on rules of thumb for something that is so highly variable and site specific.
I could be wrong, but I believe what Gino was mainly asking for was "what costs", rather than "how much" cost. Sort of on the lines of how nancy answered...land development, subdivision approval, permits, inspections, lawyer fees associated, zoning, inspections (different types of inspections, i.e. building, environmental, etc.) and other due diligence costs. I have done some research, but I am pretty interested in the answer to this as well since, real world experience would likely bring up other costs that you just can't or don't get from courses or books.
QuietStorm and Gino,
Here's a list of categories of work & cost (rather than $ amounts of cost).
1. To subdivide a parcel into lots:
a. engineering -- this includes surveying, identifying soils on the site, checking if there's floodplain, getting site-specific topographic info, precisely locating existing structures, data relating to utilities (if public utils, line locations & profiles; if on-site, testing for suitability for sewage disposal systems), laying out the subdivision and "horizontal improvements" (new streets, curbing, sidewalks, stormwater management, etc), providing all data on plans that is required by the municipality in the subdivision approval application, estimating costs of horizontal improvements
b. specialists
real estate attorney; environmental consultant; wetlands consultant, others as needed or required (eg, traffic engineer)
c. fees (application, permits)
d. municipality in granting subdivision approval may require the applicant to post security (developer escrow agreement) with it before it allows the applicant to record the plan and start site work
Once subdivision approval has been granted and the plan is recorded:
2. Cost of installing horizontal improvements to the site -- everything except building of houses or non-residential structures (excavation, grading, landscaping, demolition, roads, utilities, curbing, sidewalks, traffic signals, catch basin & other stormwater management facilities, etc), municipal fees
3. Cost of building of houses, building permit and other fees, architectural if needed to design and develop building plans
4. Loans for land acquisition, horizontal improvements to the site, construction of houses/buildings
5. Closing costs on land purchase and closing costs on sales of lots (with or without houses on them)
6. Marketing/advertising
I hope this gives you a better idea. Of course, the work to be done (including due diligence you hire people to do) depends on the site and the particular development scenario. There may be off-site costs if you need to run water and sewer lines from the site to off-site (or vice versa). But these are the basics in my experience. [ Edited by NancyChadwick on Date 04/14/2004 ]
Nancy,
This is exactly what I am looking for. I was looking for general terms that may OR may not be a part of one's deal, but could pop up on any given deal. I wasn't looking for a specific value. Thanks again.....
Thanks a lot, Nancy. That was VERY informative!
I have a question for you Nancy, or any other developers out there that I hope isn't too far off this topic...
If I am looking at wholesaling to a developer land with property that may be best demo'd and rebuilt rather than renovated. What costs should I be considering and factoring in before I make my offer so as to be able to make some profit. My knowledge on demos is very limited. Oh, also, what should I be considering from a rebuilding standpoint and/or what inspector/engineer should I ask for quotes on what will be involved and necessary. I believe I understand much of the basics as I've been studying rehabs down to structural, but I figure there's a lot more involved with a demo and rebuilding.
I am willing to read a long post, but if you believe the answer is too complicated to post here, references are welcome.
QuietStorm,
About the costs of demolishing structures, I don't have any experience in getting quotes for this. The only thing I can suggest is to contact some excavating contractors. You might also want to talk with some environmental consultants if the structure to be demo'd contains toxic or regulated substances (tanks, asbestos, etc.).
Well if what needs to be demo'd is a single family house you can usually get that done around here for less than $10,000. Obviously the bigger the bulding the more the demo cost.
Gino, find a builder that pays for everything except land aquisition, and if they have land in their own inventory, even better. You will make a little less of a profit with this type of "turnkey" deal but it saves a lot of time and headache. Just my take on it.
Then what would I bring to the table.....def not expertise. Capital?? Vision?? Thanks for the reply. I am getting much more comfortable now.
Sorry for the late response. Thank you Commercialking and Nancy for your replies!