If you are looking at a property that you are considering developing you may wonder whether it is truly worthwhile to do so. There have been many people who have purchased properties with the intention of renovating and then reselling them. Although some of those people have been able to make a profit through property development the fact is that many more people have found that they have difficulty doing so. The recent downturn in the real estate market has made this even more of a challenge.
But how do you select a property that is good for developing? To do so, it is important for you to ask a few basic questions and make a few basic calculations in order to tell whether a purchase will be advantageous for you.
Questions you need to ask
The questions you need to ask when deciding whether to purchase and develop a specific property are much the same as the questions you would be asking if you were purchasing the home for yourself. Others are more specific to the concept of property development itself.
The questions you should ask regardless of whether you would be developing a property or living there yourself include:
- Is the house structurally sound?
- Is the price reasonable for the area and the size of the home?
- How much would it cost to perform any renovations to update and improve a property?
- How long would these renovations take to complete?
Questions that you may want to ask if you are considering a home for property development should include:
- What is the real estate market like in this area?
- Is the area up and coming and likely to be attractive to purchasers?
The next step
The next step that you need to take is deciding whether you can turn the kind of profit you want on a particular property. This is done through a fairly simple calculation that anyone can perform quite quickly. You need to decide what kind of profit you are looking for in terms of a percentage although this can also be expressed as a dollar value as well. Many people who are involved in property development will not touch a home if they cannot get a minimum profit of 20% or more.
In order to find out what the profit you can expect from a property you need to fill in the following information:
- Cost of the property you are considering
- Renovation costs (make sure to include a percentage in order to accommodate renovations that go over budget)
- Costs for closing and other associated fees
- A cushion or contingency fund
You simply add these costs together in order to find out the total cost of the home. You then need to do research in order to find out the price you can reasonably expect to get for your property. You need to use current market details such as comparables in order to find this out.
If you are able to subtract the cost of the home from the resale price and you end up with a percentage that is over what you set as your goal, it is worthwhile for you to purchase the home for property development.
Ms. Ateeya Manzoor is the Managing Director of Mayfair Management Group and a skilled strategic and risk manager with over 20 years of experience, 12 of which have been at the executive level. Through her 20+ year career spanning Bay Street and Main Street, she has worked on projects in the technology, legal, hospitality, property development, engineering, oil and gas and professional development industries.
Clients value her vision and unrelenting commitment to delivering tangible results.
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