Development Costs & Budgeting

building-plans-berkshire. Property Development Costs

You've found the ideal property development and can't wait to rip out the fireplace and knock down walls. But the key to making a profit from your project is to get the cashflow right from the start.

By Sarah Jagger

Estimating Your Profit

Draw Up A Budget
Your first step is to draw up a budget, and stick to it. This is vital if your property development is to be successful. To be able to budget well, you need to be aware of how much everything will cost from the beginning of the project, from buying the property to furnishing it. So you need to get quotations for professionals' fees, mortgage fees, building work, fixtures and fittings, decoration, and so on, well in advance.

Set A Ceiling

Never plump for the first mortgage that you are offered. Research the available products yourself, but then go through your finances and your business plan with an independent financial advisor (IFA) whose services have been recommended to you by someone you trust. Your IFA should then be able to suggest a range of mortgages at the best possible rates, and also identify a figure that you can realistically spend on a property without getting into serious trouble.

Determine The Resale Value

You also need to determine the property's resale value to work out potential profit. The best way to do this is to see what similar properties have sold for in your area. You can check this out on the Land Registry's website.

Also ask three local estate agents for separate valuations and ask them to determine whether the local market is right for any property alterations you have in mind. After all, you don't want to waste money on making a two bedroom house into a four bed, if the area primarily attracts single buyers.

Contingency Planning

Once you have an idea of the costs involved you need to set aside a contingency fund. This is to cover unforeseen problems such as delays in getting building regulations approval or extra expenses such as repairing a roof. You should aim to set aside 10 to 15% of your total budget for this purpose. The last thing you'll want to be doing when taking on a major property development project is scrabbling around for money.