How to Conduct a Property Development Analysis

Although every individual property development project will be entirely unique in a whole host of ways - both predictable and unpredictable! - there is a general workflow pattern that tends to be common all projects of this type, both large and small.

That said, there’s no such thing as an entirely universal property development analysis model, because there will always be exceptions to every rule of thumb. Indeed, those exceptions are essentially the very reason for conducting a comprehensive analysis in the first place. However, having a solid, well researched market overview and a full feasibility study in place will usually help to flag any potential property development risks and opportunities before you go in.

The ultimate aim in carrying out this type of analysis is to give you a clearer all-round perspective on the project, prior to embarking on the more practical stages, and thus increase your chances of achieving optimal value for your investment.

For most such ventures, the overall scheme of things, workflow-wise, will typically look something like this:

1. Analysis and concept development
2. Pre-purchase planning
3. Development/building admin and approval
4. Purchase
5. Drafting full construction/remodelling plans
6. Contracting and document preparation
7. Active building/development phase
8. Completion of project, beginning of preparation for sales and/or move into rental market

For the purposes of this short overview, we’ll take a closer look at stages 1 to 3 - the all-important process of property development analysis and pre-planning.

This question is very difficult to answer succinctly, simply because the most honest answer is, frankly, ‘a lot’.

There are a whole host of preliminary questions to address, and many issues to go over with a fine-toothed comb, well before you even begin thinking about any of the more practical aspects involved in an ambitious property development project. In truth, the number and variety of key factors to consider when drawing up a holistic analysis plan for a project like this can seem overwhelming at first.

In order to keep things a little more compartmentalised and manageable, it’s often helpful to begin by breaking the analysis task down into various broad sections, each with its own list of potential subsections.

For most property development projects, these might commonly include:

1. Choosing your approach strategy

1. Building new vs. existing development - how early on in the process do you want to become involved and responsible? How much responsibility would you like to be able to delegate to a trusted property management team?
2. Sales market vs. rental market - which strategy best suits you in terms of length of commitment, realistic profitability targets, and available time to dedicate going forward? Which will work best in the area you’re looking at, and for the types of people you’re looking to sell/rent to?
3. Target demographics - who is currently getting the best use and value out of property in the local area, and how might this change in future?

1. Exploring development/building potential and cost

1. Planning permission and building permission - what might you (or, more importantly, buyers/tenants) like to be included on site, and would you realistically be able to provide it at this location?
2. Are any potential permissions already granted, or is any development entirely subject to future approval?
3. Careful planning is required around the issue development costs vs. ROI targets:
1. Remember that development potential won’t always necessarily increase income potential. Does the property offer a good chance of locking in profit at the buying stage, rather than focusing entirely on a hypothetical future sale?
2. A good approach here is to set a realistic ROI target, and work back from there when factoring in development costs, rather than trying to assume a level of added value that may not end up being realised
4. Think carefully about who you might gather expert opinion, insight or permissions from. Depending on the scope of your plans, this might include anyone from legal bodies, local authorities and town planners, through to a very wide range of engineers, surveyors and builders specialising in numerous different disciplines.

1. Researching and gathering detailed market info

1. Look closely at issues of supply and demand for a given area, including vacancy statistics and length of time on the market (both for specific properties and general trends)
2. Research as much as you can into shifting local prices and rates over recent years
3. Try to track any recent/ongoing shifts and emerging trends in population, demographics and desirability across the area - again, there are a number of people, groups and sources you could approach for added insight here
4. Ask questions about any planned developments to nearby facilities and amenities, including planned additions to infrastructure, transport links, parks and schools
5. Try to chart potential for continued growth among target buyer/tenant demographics for the area - but always be wary of extrapolating statistics too far, and try to stick to real local data rather than projected numbers.

As you can see, there’s an awful lot to think about - and remember, relative to the overall timeline of buying and selling a property, we’re still very much in the preliminary stages!

However, all of the above steps can prove extremely helpful when putting together an initial analysis framework for planning a property development or investment project. Careful planning is an absolutely vital factor in aiming to make reliable, sound additions to any portfolio, and never more so than when looking to develop properties for rental or resale.