You can watch a video of Ritchie walking around the project. Click HERE for exclusive video content.
Having found an old printing works ripe for residential conversion, Ritchie had agreed on a joint venture deal with the vendor, which meant he didn’t have to buy the property. The initial numbers looked promising, but he now needed to find out what contamination existed on site (if any) and get the input of his construction and design team professionals. Would they see the same potential that Ritchie did, or would they uncover some fatal flaws?
The development process is one of constant refinement. You start with high-level assumptions and then refine your business plan as you go. You can’t nail every cost beforehand; instead, get an offer accepted based on high-level assumptions, then firm up as many costs as possible before you exchange contracts.
You should have a standard deal analyser that you use for every deal, where reasonable, high-level assumptions drive the figures. You’ll have estimated figures for professional fees and finance costs, plus you’ll have estimated build costs per square metre split by type of finish (because a premium specification will cost more to build per square metre than a basic one). Where do these pricing assumptions come from? You’ll need a cost consultant (a.k.a. a quantity surveyor) on your team, and they can give you some sensible high-level figures to use for your build cost and professional fee assumptions. Personally, I’d pay them to help you create your pricing model, as free advice is worth what you pay for it. You’ll still need them to give you firm numbers on each deal before you buy it, but you can now be confident your initial analysis on any new deal will be reasonably accurate. As for finance costs, your commercial funding broker can provide sensible assumptions and fees.
* Top Tip: Never assume your assumptions are correct! Construction costs can move quickly, so the prices quoted on your last deal may need to be validated. Before you commit, go through every price in your model and ask yourself how accurate it is. Also, revisit pricing assumptions with your cost consultant and finance broker regularly to make sure they’re not out of date.