The financial analysis of a company is vital when inspiring confidence in investors, identifying the relationship between various elements of financial statements, and forecasting financial performance. The same goes for property management. You should think of a property development like you would any other type of business plan. You need to know what expenses you’ll encounter and how much you can realistically hope to generate in income from a property to ensure the profits outweigh the costs.
By deconstructing a complex project and identifying the individual costs and revenue channels of a potential property development, you can better ascertain the value of your investment. Additionally, you can determine how much you’ll need to invest upfront, and how long the property will need to operate before it turns a profit, which can help you plan for your bridging period with the right bridge loan. Continue reading to learn more about why financial analysis is so important for property development.
What does a financial analysis provide for property developers?
Financial analyses provide two comprehensive lists for property developers: a list of assets and a list of liabilities. The work of a professional financial analyst is to uncover liabilities you may not have otherwise accounted for until they became urgent. These costs might include:
- Council permissions and other development permits require fees upfront but may also lead to larger expenses if they are denied. Some may require further work be done in order to achieve compliance.
- Power, septic, and water utilities, which may include installation and connectivity costs during the development phase. This could involve paying for trenching to run underground lines.
- Landscaping and concrete laying are often unnecessary if you don’t plan on deviating from the previous purpose of a property. However, this may be necessary if the property isn’t meeting parking demands or suffers from drainage problems. Upgrades can also improve overall property value.
- Professional and consultancy fees tend to pay for themselves if you hire the right people and gain value from their services, but it’s easy to forget to budget for the cost of the people helping you budget.
What can you afford?
Financial analysts weigh the cost/benefit of your property with your own budgeting capacity to paint a portrait of expected value. In other words, how much can you get out of what you hope to put in? Their job is part accountant, part appraiser. Many property developers want to devote as much of their investment funds early to create the highest value possible for their property and ensure higher overall revenue in the long run, but this can mean that finances are depleted while the property acquires tenants and is only beginning to turn a profit. This period is when financial analysts can turn developers toward bridging finance to ensure sufficient capital is on hand until a property becomes self-sustaining.
Bridge the gap between investment and revenue
For developers, a thorough financial analysis of a property offers a promising return on investment. Bridge finance is unique among the available sources of debt financing for its high security and yield, satisfying a particular need for developers and allowing them to invest in lucrative properties. CFS Bridge Finance offers leading bridging finance solutions for NZ projects. Contact Crown Financial Services today to arrange your consultation.