Buyer Resources

Creating your first development project - General Costs & Calcs

This information is written only as a general guide of what a construction project will cost and the average profit estimation.  The numbers and formulas presented in this document are not real, they are accurate however everything varies according to the land, service providers and other external factors. This information is created through personal experience.

So, you are bought a property in Baja and are interested in developing the land for business purposes or simply to build your own place?

Ok, first things first:

As a developer you have to consider some very important issues you must already know:

• Land cost (LC)
• Urbanization costs (UC)
• Construction costs (CC)
• Tramits and legal costs (TLC)
• Architecture and design costs (ADC)
• Use of soil permits restriction

Let’s say for an instance you buy a property and your development plans have the following information:

Dimension of the land is: 20,000 M2
LC = 1000,000 USD
UC = 500,000 USD
ADC = 20,000 USD

Total Costs Base Costs = 1,540,000  USD

So far before you get into construction you could easily sell your 25 lots at a minimum of  $61,600 USD and finish your project with $0 earning and $0 loses.:

Breakeven point = 61,600 USD (1,540,000 / 25 lots)

So, above that, what ever you increase the price is your profit.

Everything looks great, lets take a look of what happens now that you’ll build your home.

Now you plan to build your 25 high end residential homes down in La Paz and each house will measure 150m2 (about 3000 square feet, more or less). You bid through different providers and get a Construction Cost of:

CC = 1000 USD per M2

The total construction cost will be:

CC= 1000 USD x 150 m2 per house x Total number of houses

CC = 3,750,000 USD

Or $150,000 USD per house.
Now you need to calculate your minimum sales price to get a $0 lose.
Total Cost = 3,750,000 + 1,540,000 USD
Total Cost = $5,290,000 USD
Minimum cost per house = $211,600 USD

An estimated sales price probably would be around $450,000 USD

So you’ll get a profit of $238,400 USD per house which adds for a total of $5,960,000 USD before taxes!!!
Well I guess you have to rest about a 33% profit tax from México, so now you will get approximately $3,993,200 USD in net profit, so in conclusion your building project adds up to $11,250,000 USD (Total Cost + Total Sales or Sales Price x number of homes).

If we do the math you are making a ROI of  35% ($3,993,200 / $11,250,000).

So what do you think, who said building homes is not a great business!!!!

Don’t forget to read the article: “Use of soil permits restrictions on La Paz, B.C.S.”

• Author: Norvell Abente
• E-mail the author: abente@investbajasur.com
• About the author:
• Current Job: Management Director at Invest Baja Sur S de RL de CV
• General Info: Born in La Paz, B.C.S. on 11/11/1977, has a major on Management and a Master on Business Administration, has an important background experience on Finance, IT. He is currently working with important investment groups and intermediaries in México. On the side he is investing on the Development Project Tierra del Sol. He is also the designer & Programmer of the website InvestBajaSur.Com, you if you don't like anything on it, is his fault!

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