You nailed it Tyler! Soft costs is definitely the most misunderstood, and underestimated or ignored, part of the budget for new developers! Architects, engineers, marketing, attorneys, etc cost $$! :)
I love math. Sometimes other parties you are competing with don't do their math the same way, and it will drive you nuts. It will make you want to change your formulas and inputs to make your numbers work. Resisting the urge seems to be the way I would lean. If you buy too high, you may never ever recover. Better to let it go and live another day instead while searching for a deal that actually pencils.
I know the 4.5 cap was for example purposes, but what are you building to in todays environment?
Additionally, Softs costs at 20-25% of hard costs seem high, is that because its 50 units vs larger developers doing 100+ units may be able to achieve 15-20% Soft costs? Thanks!
I'm not building to anything in today's environment. Caps in our area definitely north of 6%+.
I've always found soft costs to be in that range, certainly better scale with more units. But like everything, everyone makes slightly different assumptions. I hesitate to give generalities but had to here, but as you know everything is always project specific!
Great breakdown Sean. I’d imagine a lot of new developers get tripped up on soft costs.
You nailed it Tyler! Soft costs is definitely the most misunderstood, and underestimated or ignored, part of the budget for new developers! Architects, engineers, marketing, attorneys, etc cost $$! :)
I love math. Sometimes other parties you are competing with don't do their math the same way, and it will drive you nuts. It will make you want to change your formulas and inputs to make your numbers work. Resisting the urge seems to be the way I would lean. If you buy too high, you may never ever recover. Better to let it go and live another day instead while searching for a deal that actually pencils.
For sure Tom! It's frustrating, but need to stick to your guns.
I know the 4.5 cap was for example purposes, but what are you building to in todays environment?
Additionally, Softs costs at 20-25% of hard costs seem high, is that because its 50 units vs larger developers doing 100+ units may be able to achieve 15-20% Soft costs? Thanks!
I'm not building to anything in today's environment. Caps in our area definitely north of 6%+.
I've always found soft costs to be in that range, certainly better scale with more units. But like everything, everyone makes slightly different assumptions. I hesitate to give generalities but had to here, but as you know everything is always project specific!
Great article. I just started a real estate development masters program at my local university in South Florida