How To Prepare A Feasibility Study
Last updated 26/02/2019
From a partial or complete investment to a full-blown development project, simply diving in without first establishing its “feasibility” could be likened to setting off on a journey to a previously unvisited corner of the world without a route map. That’s where your feasibility study comes in and if you thought that creating one was nothing more than a number-crunching exercise you may be in for a surprise. While there may be some cost involved in preparing your feasibility study it could save you from making some costly mistakes and it is also likely to be a prerequisite for your lender if you need to finance your project to any degree.
Some questions you may want to ask before you begin
For the purpose of this article, we will assume that a feasibility study would be created even before planning permission and other legal issues concerning the right to build on a plot have been resolved. Access to utilities such as water and the electricity supply also need to be factored in and the proximity of these are also likely to affect cost and other practicalities. Considering your investment goals in terms of ROI either from sales or rental income should already be factored in. These may, in turn, rely on several other impacting factors such as transport links and local infrastructure.
Taking it slowly one step at a time
It is worth considering that the feasibility study is probably one of the most important phases in your development project and it will form the “foundation” of your project. For this reason, doing it right and taking your time over creating it is likely to make the difference between making a tidy profit, getting out without losing your shirt, or much worse, making a loss.
While every project will have its own unique criteria, as a rule of thumb, most feasibility studies are created by factoring in the following:
The cost of the land
including the initial acquisition, stamp duty, conveyancing and other projected legal fees associated with it.
The cost of financing the land
in instances where it may be preferable to settle this before building commences. In such cases this financial cost is viewed as a separate item from the actual cost of building such as labour and construction materials.
Costs to councils
and other civic bodies including planning fees and the cost of permits to build should also be considered even in cases where “outline” planning permission has already been granted.
The cost of construction
is likely to be one of the most difficult to pin down and (on a practical note) tying up with a construction partner who has the experience and confidence to operate on a fixed budget will help you sleep much better at night.
The cost of marketing
the project can be pretty hefty where estate agents are involved and project owners are also going to be footing conveyancing fees on any units they sell too.
Making your sums work for you
Just as you would with a standard income over expenditure budget, you will finally factor in the potential cost of any contingencies and add a healthy expected ROI in the form of sales or projected rental income. Once you have the vital data that you need to create your feasibility study, you will be ideally placed to make a more informed and rational decision as to whether to proceed or not.
Please note, this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.