Property Development Budget Best Practices

31 December 2018

Property development is an exciting and booming industry. In the right economy, properties are developed and planned daily. But in order to be succesSFul in property development, you must budget accordingly.

An improper real estate development budget can halt your development in its tracks, stalling your project for weeks in some cases. An accurate and in-depth property development budget will make sure your development project moves along seamlessly.

At Focus, we have quite a bit of experience in developing property budgets so here are a few best practices and budgeting tips from us.

Plan Accordingly

We cannot emphasize enough how important it is to plan. The preconstruction process is as crucial as the construction process itself. Planning is crucial to making sure your real estate development budget stays on track.

During the preconstruction process do some research on property developments similar to yours. Look into budgets of projects that are like your own. This will give you an introductory look into what your budget may look like.

Another significant part of the planning process is getting the proper permits. Find out what permits you will need for your development. Local governments are the usual resource for finding out what exact permits you’ll need. If your project does not have the right permits, you’ll risk having to stall your project which ultimately results in significant downtime and a huge loss in funds. Prevent this by getting the right permits from the start.

Develop a Business Plan

To get a better idea of how much you’ll be spending, it’s smart to develop a business plan. Here you’ll discuss the overall scope of your project and the necessary resources to get that development done. Ask yourself a few questions such as:

  • How much are you hoping to profit?
  • What personnel is necessary to complete this project?
  • What equipment is necessary for this development?

Here you want to really hatch out what your project is and get an idea of the funds that will be needed to achieve this.

Produce an In-Depth Project & Cost Analysis

In order to ensure a positive ROI, an in-depth project and cost analysis is necessary. This is where you’ll really get into the details of the budget. Underestimating funds can be detrimental to your development, so you’ll need to get down to what is really needed to make this development happen.

Think through the entire project and decide upon the resources crucial to making sure this development happens. Decide how many workers you’ll need, what equipment you’ll need, permit costs, and anything else that has an impact on your budget.

Quantify Every Single Part of the Development

Once you’ve decided upon what elements are crucial to making this project happen, you’ll need to quantify the costs of each element. It’s extremely important not to underestimate here. This is where you’ll be putting dollar amounts on the pieces of your property development.

Here you’ll decide on what you’re willing (and is necessary) to spend on:

  • Acquisition costs - land or property costs
  • Construction costs - equipment costs, labor costs, relocation costs, etc.
  • Approval fees
  • Financing and loan costs
  • Professional services fees
  • Site and soil investigation costs
  • Contingency fee
  • Consultant costs
  • Insurance
  • Additional expenses - external contractors and other miscellaneous expenses

We cannot emphasize enough how important it is to give proper budgets to each of these factors. Underestimating any of these costs will cost you time and money and upset your clients.

Use Real Estate Development Excel Models

Lastly, a great way to set a definitive budget with a little bit of guidance is to use a real estate development excel model. There’s a variety of real estate development excel sheet models readily available on the internet that will help you format and get a clearer idea of your budget. These are an especially good tool if you're new to setting property development budgets.

Follow these best practices for property development budgets and you’re sure to have a succesSFul and well-budgeted development process. For help with your next property development, contact Focus today!

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