Building a land subdivision financial feasibility model

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So you’re toying with the idea of subdividing that spare block of land out back and are curious what potential payday awaits. An exciting prospect no doubt!

But before getting ahead of ourselves visualising future profits, we need to validate whether ploughing time and money into splitting the lot is actually financially wise or realistic.

Enter the feasibility forecast – an analytical tool that examines a potential land subdivision from every fiscal angle..

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…stress-tests assumptions, and ultimately quantifies if the undertaking could deliver acceptable returns or not. Consider it attaching a BS detector to our bullish aspirations!

Constructing a detailed feasibility spreadsheet model enables methodically working through the numbers to determine if our visions of labelled plots and big land sale checks will bear fruit. I’ll walk through building a tailored model to assess subdivision viability for a site and determine if things stack up or are pie in the sky.

The model structure aligns all the quantifiable ins and outs – potential sales proceeds from additional lots created, costs to transform the land then deliver it to market, timeframes, risk factors. Crunching the data calculates key profitability metrics, allowing tweaking of variables to optimise and test worst case scenarios. It’s about converting uncertain what-ifs into decisive business intelligence.

So let’s dive into the components that comprise a land subdivision feasibility spreadsheet for making an informed Go or No Go call!

Constructing the Fiscal Skeleton

The first step is building the overarching feasibility spreadsheet format to plug everything into – revenues, costs, timeframes. Think of this step as constructing the fiscal skeleton that all other model limbs hang off.

At the highest level this captures the essential revenue and cost streams if the hypothetical subdivision eventuates. We allocate space for inputs covering the identified titles or property parcels under consideration and all associated establishment expenses.

Cost categories like legal transfers, construction activities, council approvals get isolated into their own sections with itemization beneath. This could be retaining wall builds under construction, or permit applications under council processes.

Overarching formulas integrate the multiple model fragments into consolidated outputs. This reveals big picture financial indicators like total net margin, return on investment, years to breakeven. Figures instantly update whenever we fiddle with an input dial elsewhere as part of testing assumptions.

I’ll attach some screenshots shortly demonstrating all this structure visually end-to-end so it’s clearer. For now, it’s enough to understand the high-level layout before populating with specifics – planned revenue sources and cost sinks combined into an overarching profitability snapshot delivered via key summation metrics. Time to add some flesh!

Pricing Up Potential Plots

With our core feasibility spreadsheet now structurally sound, let’s focus on revenues and start valuing the hypothetical land lots our subdivision aims to create. Here we want to derive realistic sale prices for the additional parcels, which when multiplied by yield quantities and aggregated provides total realisable value.

The goal is credible market-adjusted figures, not aspirational asking prices. So do research on recent land plot sales in nearby suburbs or your specific zone. Check in with local agents too regarding $ per square metre people are currently paying. We want representative prevailing rates.

Armed with a rate that recent activity supports, apply this to the areas of each lot envisioned in the proposal. For example, 450 sqm at $550 per sqm gives $247,500. Validate totals by reviewing online real estate listings for alignment too. Consider haircutting end valuation by 10-15% too as downside protection should the market shift following delays.

Once we have reliably modelled potential end-values for the planned plots, multiplying our hypothetical yield against the individual lot prices gives us total revenue expectation. By doing diligence here we confidently estimate genuine market-driven revenue potential as opposed to optimism or hearsay. Time to tally costs!

Accounting For All The Costs

With potential top-line revenues for our hypothetical subdivision now forecast, attention goes to the opposing column of the spreadsheet: costs. Here we’ll itemise every expense needed to transform the parent lot through legal machinations, construction activities and council sign-offs into marketed titles ready for sale.

It’s easy to only visualise the end-product land plot price stickers, but we must account for all that goes on behind the scenes first. Cost activity divides into chunks like legal transfers, physical earth works, planning approvals, professional services, and sales/marketing spend. I’ll focus on the major ones at play to illustrate.

Under legal lies stuff like title transfers, property adjustments, easement contracts. Under earthworks sits clearing, grading, drainage, driveways. Council charges cover development applications, engineering approvals, site inspections. Sales budgets entail real estate agent commissions and online portal advertising.

Drill down and line item existing quote estimates wherever possible, with plus or minus contingency buffers. Councils publish scheduled fees. Builders can provide turnkey quotations. Where unsure, competitively tender for clarity on expenses. Completeness now prevents nasty shocks later!

With major scoped and contracted costs in place encompassing the start-to-end workflow, we gain confidence estimating a reliable total project budget. This gets punched into the master spreadsheet against the forecast land plot sale revenues already locked in. Time to let the number crunching commence!

Putting It All Together

The spreadsheet setup work is done. We’ve structured the model, forecast realistic revenues, and accounted for necessary costs. Now comes time for our land subdivision feasibility tool to work its magic and auto-calculate whether the proposal seems financially wise or not per key profitability metrics.

In one master workbook, formulas now integrate the hypothetical revenue stack from our future land plot sales against the full spectrum of required establishment expenses. Mathematical pillars instantly quantify profit margin, return on investment, years to breakeven.

We quickly see whether our assumptions pencil out favourably or not. Margin above 15-20% is considered healthy feasibility here depending on risk levels accepted. Sale proceeds delivering over double the capital outlaid suggests strong leverage and deal progress.

If base metrics disappoint, we now simply adjust variables like sales rates, cost contingencies, or holding duration to rapidly stress test alternatives. The model enables fluidly evolving scenarios rather than static guesswork. We also derive answers around worst case downsides if planned outcomes aren’t realised.

What began as back of the envelope speculation is now either validated or rejected through tangible reconciled numbers. We’re equipped to make an informed business decision about whether to proceed. The feasibility model has objectively measured hypotheticals against reality. Are we compelled by the projections? Time to decide!

Customising For Your Situation

While I’ve outlined a standard feasibility framework for assessing subdivision viability, recognizing no two development sites are identical is pivotal. Simply copying someone else’s model unlikely optimises unique traits or constraints on your land.

Instead view the baseline template we’ve built as a sound foundation but don’t be afraid to tailor components to leverage a property’s quirks. Our model is merely an analytical lense for interpreting the data points reflecting proposed design and commercial outcomes.

For example, minimise earthworks budgets by planning concentrated pocket development rather than traditional dispersal. Or lift revenue expectations modelling luxury executive lots rather than affordable cookie-cutter homes.

Continually revisit previous assumptions now disproved through new site insights. Rejig cost estimates as contractor negotiations progress. Adjust sales rates mirroring recent local activity, not outdated memory.

While foundational structure remains largely intact, manipulation of key variables within your control can substantially impact feasibility. So remains curious, agile and data-driven responding to fresh project learnings as they emerge.

By aligning our spreadsheet aspirations with on-the-ground realities through continual user tweaking, we squeeze out optimum viability from the development opportunity at hand. Site-specific circumstance and commercial context holds the answers if we remain open by iterating via metrics.

Wrapping Up

Undertaking a land subdivision is an exciting and potentially lucrative undertaking, but one loaded with risk if pursued blindly. By constructing a detailed financial feasibility model before outlying real funds, we stress test assumptions and quantify true profitability potential.

The model provides structure for capturing all revenue and cost considerations from a hypothetical subdivision’s start to sold completion. Crunching the inputs measures anticipated profit margins, return on investment, breakevens. We can tweak variables to optimise the opportunity.

Ensuring flexibility to tailor the model to a site’s unique traits or market conditions is key, rather than copying a static template. Continually align metrics with emerging realities on the ground.

While formulas do the heavy number crunching, informed model inputs and how we interpret key outcomes determines quality of decisions. Used proactively, a feasibility spreadsheet shifts subdivision from speculative dream to executable strategy.

With eyes wide open to both downside dangers and upside potentials via data-driven scrutiny, we can make a calculated call whether the numbers compellingly stack up to justify unlocking land value via subdivision. Here’s to informed risk-taking!

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Got a query related to land development for your Melbourne property, or want the advice of a private land surveyor based in Melbourne? For more information about our land  surveying services in Victoria, contact Stacey Surveying today by calling 03 9088 3695 or completing our convenient online contact form.

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