25 Mar How Much Money Can You Make From Property Development?
Make money from property developing
I could just say “a lot” but that would depend on the type, size and location of the project.
But before we do that, let’s decide on what a property development is – or what it isn’t.
I don’t consider purchasing a block of land and building a house on it to be a development. That’s called building a spec house. Nor do I consider a renovation – cosmetic or structural – to be a development.
Let’s assume a development in most cases is creating more titles than you started with. The simplest development would then be a one lot into two lot subdivision. As projects get larger, we could create more lots and even introduce the construction of buildings.
Type of Development
Let’s limit this discussion to residential property development and ignore commercial development. That leaves us with land subdivisions, townhouse developments and apartment developments.
Size of Development
If we’re talking land subdivisions, the smallest would be a one lot into two lot subdivision. We then have the option of selling the vacant lots of building a house on either or both. The smallest townhouse development could be a simple duplex (two adjoining townhouses). If we consider apartments to be dwellings not only attached horizontally but also vertically (one on top of the other) then four apartments is about where they start.
Location has a big bearing on the initial cost of the development site and the ultimate selling price of the finished product. A house sold not long ago on Sydney Harbour for just under $100,000,000 whereas the median price of a house in Andamooka, 600 km north of Adelaide, is just $20,000. The more expensive the location, the more capital required to develop and ultimately the more profit. This is because development profit usually is measured as a percentage of total development costs (TDC) or occasionally as a percentage of Gross Realisation Value (GRV), another name for selling price.
So, How Much Profit?
Here is a rough thumb rule for calculating the approximate profit for different projects. Multiply the GRV by the following percentages:
2 lot subdivision – GRV x 10%
2 lot subdivision plus 2 houses / duplex – GRV x 13%
4 townhouses / apartments – GRV x 16%