How often have you been on a building site and seen a roofer unloading his equipment, standing on the roof?
The roofer would look up and see two workers climbing up the scaffold. The two workers would stand on the scaffold as the roofer laid down shingles.
This is property development in a nutshell – hidden costs.
Here are some obvious examples:
Acquisition Costs. Property development can take months and sometimes years. Purchasing the land, preparing the layout and designing the property takes time.
The time spent on acquiring land is what normally takes up the bulk of the developer’s time. This includes getting the loan, getting utilities switched and the requisite approvals.
Design and consultancy. Once the property is acquired, design begins. We all know that an architect is needed to map out the windows, doors, room layouts and decorative details, but there’s a lot more to be done as part of the design process. If an assisted living property is being developed, for example, experts like these assisted living development consultants are needed to give insight into what an assisted living development really needs. Only consultants really know what a particular development needs, and they work with the architect to create a plan that works.
Construction. Construction also has its hidden costs. Builders employ all kinds of specialized workers – electricians, plumbers, carpenters, roofers, and potentially those who are qualified in cleaning out any gutters that may be filled with debris, like those at Clean Pro Gutter Cleaning Beaverton. However, this may only be done once the building is near completion.
Construction consumes the work of all these skilled tradespeople. Without them carrying out this work as soon as possible, it will be hard for people to see the true value of a building. After all, who wants to live somewhere that hasn’t had the professional help of residential plumbers, roofers, or carpenters to get the house in the best condition possible, as well as one that is ready to be moved into as soon as work has been completed? It doesn’t sound appealing, which is why it is one of the first processes that need to be carried out. Once done, these hidden costs are passed on to the property owners.
Land Payments. Developers have to secure loans. These loans are typically tied to a fixed income. Often, this fixed income comes from property values – but it doesn’t.
At the end of the development process, property owners buy their property with a lump sum or use a mortgage lender where a monthly mortgage interest rate is charged over a fixed term. This monthly mortgage may not be very large and in some cases is cheaper than renting.
These new property owners will need to demonstrate to a mortgage Broker that they can afford the loan before the lender will provide the mortgage. An affordability check is carried out to ensure that they can pay their monthly payments.
How do they do this?
They often sell their existing homes or mortgages to cover the lump sum payment to their builder. Sometimes, they simply find a way to pay their builder up front, and borrow additional cash from friends and relatives. Another method is to Sell Land Fast through auction specialists, which can provide a quick and efficient way to raise the necessary funds. This way new property owners can meet their financial obligations while smoothly transitioning into the new property development project.
How Much Do These Hidden Costs Cost?
The typical amount First Time buyer would be homeowners pay for property development is somewhere in the range of between 75,000 to 350,000 for a large home. They may pay more but this is a minority.
There are some homeowners who may pay much more than the value of the property as they add in extras such as flooring, white goods and even extensions – sometimes 1000’s more than their property value. The hidden costs may run in excess of the purchase price.
Adding up these hidden costs may surprise you – you might find you have paid a lot more than you thought you did!
But hidden costs are not the end of the story. There are additional hidden costs that occur during construction. When the property is finished, there is additional cost to get it registered and pass inspection.
This is called construction related overheads – and this is another hidden cost of property development.
Construction overheads might be hidden in the form of project management fees or additional layers of management, additional tax fees for registration and inspection.
Building Quality Overhead
The construction of property can also be subject to an ongoing cost of quality. This is called construction quality overheads – and this is another hidden cost of property development.
Hidden overheads include anything that occurs during construction. These might include problems and even the necessity of paying for solutions for construction quality issues.
Because these issues are not always apparent in the plans, it’s often up to the property owner to uncover these costs and discover them.
For example, often problems with building quality will require the property owner to pay to fix it. So the cost of quality issues can be very large. And this cost can even cost property owners an additional sum of money.
In many cases, this construction quality overhead is worth more than the property value.
This makes property development so expensive – for the hidden construction quality costs.
How to Avoid Hidden Costs
It’s not easy to avoid all the hidden costs of property development, but approaching it from the other side of the fence is a great start. If you are a First Time Buyer then it’s a good idea to use a moving checklist and cost out each stage of the process using comparison websites. One of the largest expenses is conveyancing. Think along the lines of how to quantify charges for conveyancing in the UK. Some of the costs are unavoidable – but homeowners and property owners must make sure that they can identify all the costs. Some websites let you browse before you need to enter your personal details and others demand that you enter your details. These can lead to many unwanted calls and emails. So when budgeting focus on using transparent conveyancing websites that itemise like for like legal fees and disbursements. Understand what is included in the search pack, some even offer a pledge should your transaction fail.
For example, getting a mortgage is a fairly straightforward transaction, but property owners must take care not to overpay. Lenders also have hidden costs.
