By Justin Eslick
When a hot property comes along you need to be ready to fire, because any delays in submitting your offer could mean you miss out. For this reason, we recommend you carry out a B.O.E, or Back of Envelope Feasibility, rather than a full feasibility before putting in your offer. A full feasibility can take a long time to perfect and may require you to wait on quotes and feedback from consultants and builders before it is finalised... you can't afford to wait for this on a hot property!
So what exactly is a BOE?
A Back of Envelope Feasibility is a basic feasibility that can be carried out within a few minutes and can usually fit onto a small piece of paper, or the back of an envelope, hence the name.
They are never perfect, but nor do we aim for them to be. Perfection takes time. But they are usually accurate enough to enable you to decide to walk away from a property, or put in an offer subject to conditions that will give you the time to carry out a more in depth feasibility.
What goes into a feasibility?
There are three main categories:
1) Costs
2) End Values
3) Profit
Each of these can be further broken down, but we still want you to categorise items together, because too much breaking down takes time!
Here's our usual breakdown. Costs include purchase price, purchase costs, consultants, council fees, services, construction or renovation
costs, holding costs and contingency. End Value is self explanatory, but don't forget to include rents. Then Profit includes a dollar amount
and a percentage amount.
Pre-Planning
To get the most accurate result from your BOE, you need to have a basic understanding of costs and values before you start looking at deals. This way you aren't chasing these costs when time is short.
The Advantage
The best demonstration of the advantage of a BOE is to use a Case Study involving one of our client's properties. In this instance, he had 14 different development options with the site. There is no way of quickly carrying out a full feasibility when this is the case! So he carried out some BOE feasibilities, found one that worked, quickly submitted his offer and then finished the remainder of the 14 options in a BOE format. Once under contract he carried out more in depth feasibilities.
This deal is now set to make him over $800k in equity gain or 36%. A deal that would have gone begging had he not employed the BOE methodology.
Hear More
You can hear more on carrying out BOE Feasibilities at Developing for Profit. We will also demonstrate how to carry out a full feasibility and as an added bonus, the above deal that will show $800k+ in equity increase will also be shown as part of an Investor's Case Study.
For more information on Developing for Profit, click here.
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