Property Development Feasibility Example: How to Know If a Deal Works

Why Feasibility Is the Most Important Skill in Property Development

Every profitable development starts with one question: do the numbers work?

If you cannot answer that question with confidence before you buy a site, you should not be buying it. A feasibility study is the tool that turns guesswork into a clear yes or no decision.

This article walks through a complete feasibility example using realistic Australian numbers, so you can see exactly how developers analyse deals.

The Feasibility Formula

The core formula is simple:

Gross Realisation (what you sell for) minus Total Development Cost (everything it costs you) equals Profit

The complexity is in accurately estimating both sides of the equation.

Worked Example: Duplex Development in Suburban Australia

The Opportunity

You find a 780 square metre block in a suburban area zoned for medium density residential. There is an older three-bedroom home on the site. Comparable analysis shows you can demolish the existing house, subdivide the block into two lots, and build two four-bedroom townhouses.

Step 1: Estimate the Gross Realisation (Revenue)

What will the finished product sell for?

Research comparable sales in the area. Look for recently sold properties that are similar in size, quality, and location to what you plan to build.

How to verify these numbers: Check sold prices on Domain and REA for the last six months. Look at properties within a one to two kilometre radius. Focus on brand-new or near-new builds with similar bedroom and bathroom counts.

Step 2: Calculate Total Development Costs

Now list every cost in the project:

Land and Acquisition

Professional Fees

Council and Government Fees

Construction

Holding Costs (estimated 14-month project duration)

Sales and Exit Costs

Step 3: Calculate Profit

Step 4: Assess the Result

A 9.3 percent margin is below the recommended minimum of 20 percent. This deal does not work as structured.

How to Make a Marginal Deal Work

This is where skill and strategy matter. Here are the levers you can pull:

Lever 1: Negotiate a Better Purchase Price

If you buy the site for $470,000 instead of $520,000, your profit jumps to approximately $172,000 — a 14 percent margin. Closer, but still below 20 percent.

Lever 2: Reduce Construction Costs

Get three builder quotes. If a builder can deliver at $230,000 and $225,000 per dwelling instead of $260,000 and $255,000, you save $60,000. Combined with the purchase price reduction, profit is now approximately $232,000 — an 18 percent margin.

Lever 3: Increase End Value

If comparable sales support $740,000 and $730,000 instead of $720,000 and $710,000, you add $40,000 to revenue. Total profit with all three levers: approximately $272,000 — a 22 percent margin.

Now the deal works.

Lever 4: Reduce Holding Costs

Faster project delivery reduces interest costs. A 12-month project instead of 14 months might save $6,000 to $10,000 in holding costs.

The Key Numbers Every Feasibility Must Include

These are the numbers that separate profitable deals from money losers:

Common Feasibility Mistakes

1. Using inflated sale estimates. Be conservative with your revenue estimates. Use actual sold prices, not listing prices or agent opinions.
2. Forgetting Section 94 contributions. These can add $10,000 to $30,000 per dwelling. Always check with council.
3. Underestimating holding costs. Every month of delay costs you interest, rates, and insurance. Build realistic timelines.
4. Not including a contingency. Things go wrong. Soils are worse than expected. Council requires additional reports. Budget 10 percent for the unexpected.
5. Relying on one builder quote. Get three quotes. The cheapest is not always best, but you need competitive tension to get fair pricing.
6. Ignoring GST. If you are developing as a business, GST may apply to the sale of new dwellings. This can significantly impact your net profit. Get advice from your accountant before running your final numbers.

FAQs

What profit margin should I aim for in property development?

Target a minimum 20 percent profit on total development costs. This provides a safety buffer for cost overruns, market movement, and unexpected delays. Below 15 percent is generally too risky for small-scale developers.

How accurate are feasibility studies?

A well-prepared feasibility using confirmed quotes and recent comparable sales will typically be accurate to within 5 to 10 percent. The more detailed your inputs, the more accurate your output. Never rely on assumptions — always verify with real data.

Should I include my own time in the feasibility?

Not typically. Most small-scale developers do not pay themselves a salary or management fee in the feasibility. Your profit is your payment. However, if you plan to hire a project manager, include that cost.

How many deals should I analyse before finding a good one?

Expect to analyse 20 to 50 deals before finding one that meets your criteria. This is normal. The discipline of saying no to bad deals is what protects you. You only need to find one or two good deals per year to generate significant income.

What if the numbers do not work?

Walk away. The ability to say no to a deal that does not stack up financially is one of the most valuable skills in development. There will always be another deal. There is no recovery from a bad deal you committed to because you got emotionally attached.

Can I use a feasibility template or spreadsheet?

Yes, and you should. A good feasibility template ensures you do not forget any costs and allows you to quickly run scenarios by changing inputs. Most experienced developers have a template they use on every deal.