This may be a silly question to those in the know, but here goes.
When working out the feasibility of a townhouse development, would i count the total purchase price of the block,or just the interest i have paid on the loan for it?
Example- If a buy a knockdown house for 300K, and the two new ones cost 200K each to build plus site costs, would i work on it costing me 700K plus site costs for the development, or just the interest incurred on the loans minus any tax benefits.
The way i see it,it's the bank's money i am using,not mine, so i am only paying the interest.
I'm looking for an answer from someone who has done this before,thanks.
If its a cost, you include it. Land cost is a fundamental part of the acquisition of a development site. It'll cost you $700K plus costs to acquire and build. You then work out the end value/gross realisation once completed, ie: 2 x 3bed houses at today's prices = ? if sold etc. If you come out with 20% profit, go for it. Thats the figure banks would look for to fund it. If its only 2 houses you should be able to get the funding under residential terms, sell it as an owner builder, dont mention the word developer to a bank, they'll run away scared. Resi terms for a small job like this are better than commercial notes anyway in my humble opinion..
Get some good advice from an experienced accountant who's dealt with developments before.
Thanks for the tips Matt.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
