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The importance of completing a pre-acquisition feasibility study

Tuesday, 3rd Mar 2015

feasibilityProperty development can be a fine line between huge windfalls and financial disaster, however a pre-acquisition feasibility study can go a long way to mitigate the risks.

If you’re searching for a property to develop it’s important to complete a feasibility study prior to purchase to ensure the site meets your expectations.

This can be done before final settlement by including adequate clauses in the sales contract that will provide a sufficient due diligence period on the site and allow you to cancel the acquisition if you’re not satisfied for any reason.

To complete a thorough feasibility study during the due diligence period it pays to hire a professional company that is qualified and has experience with the construction and approvals processes.

A feasibility study should outline how much the site is worth, the number and type of dwellings you can build on it and a forecast of the size of the profit, or loss, you would make.

It will also provide finer details including a brief of the building and subdivision costs, a working timeframe of the project, soil analysis and engineering and drainage requirements, location of service and utilities (such as sewer lines), any covenants or easements on the land title and political or community opposition to the development.

By completing adequate due diligence at the feasibility stage you will be able to maximise your profit margin, or potentially avoid a disastrous financial loss if the project isn’t viable.

It’s also important to remain emotionally detached from the project, particularly if you may have spent substantial time and money searching for a development site and it fails to pass a feasibility study.

In this case you need to forget the site and continue your search – it will pay to be patient until the right development property arises.