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Author: Colm Dillon Article source: http://www.debt-consolidation-school.com/. Used with author's permission.
There are two sides to a feasibility study and in an earlier article I discussed the cost side of the format and:
Now Let's Discuss The Income Side
Without the Sales Income, All You've Done Is Spend Money, And Anyone Can Do That.
So that we are clear in what I am going to define for you, let me say that there are two forms of Income.
We shall be dealing with Sales Income, in this article, which in our case will consist of large amounts of money being received as a developer in exchange for the property units we have created.
The other form of income in a feasibility study, is Rental Income and will be addressed at another time when I write an E-book on Commercial Development.
Sales Income
Because of the make up of our feasibility study sheet, there will be no deductions from out Gross Sales Income, because we have allowed for those costs on the Cost Side of our feasibility study.
Items such as sales commissions for sales agents and various marketing costs have already been allowed for previously.
Now I have seen some formats of feasibility study, which deducts marketing costs from the Gross Sales Income to produce a Net Sales Income.
It achieves nothing - "all costs are costs" and they should be put on the cost side of the feasibility study, which is what I do and have always done.
When Can You Get Your Hands On The Sales Income.
Getting the sales income into your account is very important, yet many people never ask the question as to what the procedure is "exactly" in their neck of the woods.
Get to your Conveyance Expert and have them give you a schedule of events "with an estimate of time for each stage."
This information is important in preparing your cash flow feasibility study format, as it results in reducing your interest cost.
So by knowing this information at the beginning of a development investigation, you are adding a little bit of "certainty" to the early stages of your feasibility study.
Let me give you an example:
At the end of the construction phase the builder moves off site, there are a whole range of things that have to occur, any or all of which can delay, settlement taking place and so delay you getting the Sales Income.
Some of these things are:
• Architect's inspection of the entire project.
• Architect preparing a Defects List.
• Builder calling back subcontractors to correct defects.
• Architect's final inspection.
• Architect issues Completion Certificate
• Surveyor (engineers in some countries) does final measurement of the individual residential accommodation units and compares to Unit Plan that is included in the Sales Contract.
• Preparation of the Final Unit Plan (as used by conveyance office) for settlement.
• Lodgment of the Unit Plan with the Titles Office.
• Registered Title Issued by the Titles Office.
Can you see that any delay in these items will impact on the settlement date and also on your interest calculation in your feasibility study?
Body Corporate / Management Plan
It is hard to keep up with all the different names that are used around the world for the Legal Entity that runs the complex of units you have developed, however your legal advisor will let you know.
Just as out Towns, Cities and States need Rules & Regulations for all its citizens to live in harmony, so too does a small complex of units, condos, apartment etc.
What ever it is called in your part of the world, is necessary for you to engage a legal advisor to prepare one for you, which will include the preparation of a Budget to which you, as the developer, will have to pay in a certain amount of money.
The reason I am giving this brief explanation on Body Corporate / Management Plans is because at Settlement you will get back some of the money you put in to get the Budget off the ground.
In addition you will have paid the Local Council, Utility etc other amounts of money that cover a set period of time. Once again you will get some of this money back at Settlement. They are generally referred to as "Adjustments at Settlement" and act as a reduction on the cost side of your feasibility study.
So What's Next?
Remember I told you earlier about the Unit Plan that was lodged with the Titles Office, well has it issued yet? Phew - we just got it today - great!
Now your conveyance expert has to let the Buyers' representative know in writing that you are ready to settle.
In addition the buyers have to let their individual Finance Lenders know to have the Mortgage Documents completed on time and finally a date has to be agreed on which all these differing parties can meet and settle.
Now I don't want you to be concerned about all this stuff, but I do want you to know about it, so that you can understand and manage (yourself) and others who have to do all this work for you. Blowing your Top (blood pressure up) achieves nothing.
But understanding, on your part, achieves a great deal. Blowing your top, when you haven't taken the trouble to find out, makes you look foolish and unprofessional, to the professionals you have engaged to do the work for you.
So Do I Get The Money Now Or Is There More Colm?
Well, the Lender Gets the money actually - yep, the lender gets his Capital Debt and Interest paid off first. And when there is no debt, all the rest is yours. That is, your equity is returned to your account and that lovely Profit, you worked so hard to get. Author & $1.2 Billion Developer, Colm Dillon, Has Written The Best Selling 'How-To' E-book, "Residential Development Made Easy," With Readers In All States Of The USA, Canada, Australia, New Zealand, UK, Ireland and 79 Other Countries.
His Independent Web Site is:
http://www.realestatedevelopmentcoach.com/ez
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