Ep 240 – What you need to know about Property Development Margins

Introduction

When you look at a property development feasibility, you see a dollar profit figure. But is making a profit enough to make the project viable?

In this episode of the Property Mastermind Podcast, Hilary Sacks and Bob Anderson dive into the critical world of Property Development Margins. They debunk the myth that you always need a 20% margin to succeed, explaining how project size, complexity, and risk dictate the returns required by financiers. Bob shares a war story of a “skinny deal” where he had to value engineer every cost with his builder just to scrape over the line, and why he wishes he had built four townhouses instead of five. Whether you are aiming for a quick land subdivision or a complex apartment block, this episode reveals the numbers you really need to hit to get your project funded and profitable.

Episode Highlights

01:54 – Bob’s Tip of the Week: A painful lesson in sun safety—not all sunblocks (or property deals) are created equal!
03:07 – What is a Margin? Bob defines the “Developer’s Margin” (Return on Cost) as profit expressed as a percentage of total costs.
05:27 – The 20% Myth: Why the old “golden rule” of a 20% margin doesn’t apply to every project, and how smaller, lower-risk deals can succeed with less.
07:30 – Risk vs. Return: Why a complex 60-unit apartment block requires a much higher margin (buffer) than a simple 2-lot subdivision.
12:23 – Viability vs. Profitability: Just because a project makes a profit doesn’t mean it’s worth 2 years of your life. Is the juice worth the squeeze?
13:57 – The Financier’s View: Why your project might be profitable for you but still get rejected by a bank if it doesn’t meet their margin requirements (e.g., 17% vs 12%).
20:33 – Industrial Margins: A look at Bob and Hilary’s current industrial project, aiming for a 25-30% margin due to the higher perceived risk of the asset class.
22:30 – Feasibility Evolution: How “estimates” become “actuals” throughout the project life cycle, refining your margin as you go.
24:32 – Bob’s “Skinny Deal”: A candid story about a 5-townhouse project with a razor-thin margin that required intense value engineering to complete.
30:28 – The Lesson of Hindsight: Why Bob admits he should have built four better townhouses instead of squeezing five onto the block.