Feasibility Study
Real estate investing has a lot of benefits. Although it can be a lucrative investment strategy, not all investment properties will generate good returns.
For you to figure out if an investment property for sale has the potential for making money, you should know how to analyze it. In order to find cash flow properties with a high retum on investment, you need to master the art of conducting property analysis.
Through property analysis, you will know whether moving forward with a real estate deal is a smart move. However, with so many factors to take into consideration, real estate property analysis can be intimidating to a lay man, especially to a beginner. With our aid, our clients are able to understand the fundamental aspects to a sound investment.
So in order to establish whether a particular investment property will generate high returns we carry out comprehensive analysis in:
Financial Analysis
Financial analysis is the process we use in evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. We evaluate economic trends, set financial policy, build long-term plans for the business activity, and identify projects for investment.
This is done through the synthesis of financial numbers and data. Our financial analyst thoroughly examines our client’s financial position in relation to the proposed investments and analyse investments on both corporate finance and investment finance settings
Location Analysis
Location. One of the primary factors that influence a property’s value is the area the property is located in and its proximity and accessibility to amenities. Perspective end users place location above all other contributing factors, and as is often the case, will pick the area and then wait for a property to come available that meets their requirements. Certain areas are simply worth more than others. Amenities in close proximity may either elevate the property’s value or take away from it. Easy access to reputable schools, shopping centers and entertainment facilities, public transport routes and parks will usually increase the value of an area convenience is a sought-after commodity. However certain areas will be avoided due to traffic congestion or the condition of other homes in the neighborhood.
We emphasis that prospective developers put into consideration the locational attributes of the proposed development and also help identify what best suits the sites at hand and any other changes that can be made there of to meet the developers investment targets
Highest And Best Use
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. we not only consider the current use of the property but also the potential value associated with alternative uses. We have four tests that we deploy
Physical Possibility
The first test of highest and best we use simply evaluates whether it is possible to use the land in a certain way. Ignoring the zoning and economics of the proposal, consider whether or not the potential use is physically possible. That means the topography, soil type and conditions, lot size and shape, surface and subsurface water, and even weather patterns must make the development possible. In addition, we also not only consider the proposed use of the site but also the characteristics of the optimum improvements for that use. This first test, however, is usually the easiest to pass
Legality
After eliminating any potential uses that are not physically possible, we move on to the second test. Whether a potential use is legally permissible involves a few different legal considerations. The proposed use must be allowed by zoning regulations in accordance to the local government guide lines. If building in a residential area with restrictive covenants, the proposed improvements must not violate any rules. The proposed use must conform to all applicable building codes and height limits. In addition, the improvements must adhere to any restrictions imposed by easements on the property. Determining whether a proposed use is legally permitted requires research into the local building regulations and restrictions. Gaining a comprehensive understanding of the applicable legal requirements can be time-consuming to an ordinary person, but it is fairly easy to determine whether or not a proposal violates any of these regulations. Concluding whether or not something is legally permissible is a straightforward process that requires an expert. Regulations, however, change over time. An area that was zoned for residential development can be changed to commercial development. Just because a proposed development is not legally permissible does not mean that it will always be that way. In these cases, we put into consideration the probability of the legal restriction being changed to allow the proposed development. In these cases, we provide substantial documentation suggesting that the regulation will be changed in order to pass to the third test of highest and best use.
Financial Implication
To address whether a proposed use is financially feasible, we conduct a market analysis and develop proforma cash flow estimates. We industry collect data in order to forecast construction and development expenses, operating expenses, rents, absorption rates, vacancy rates, discount rates, cap rates, and residual values. Once we’ve gathered all of this information, we estimate the proforma net operating income over your expected holding period. Employing discounted cash flow techniques as earlier discussed, to determine which projects meet your particular investment standards. We compute and analyse projects with the financial techniques already discussed and compare the property’s return to your acceptable hurdle rate for projects. Only the proposed property uses that meet these criteria for being financially feasible move to the next step of the analysis.
Maximum productivity.
The prior steps eliminated proposed uses that were not physically possible, legally permissible, or financially feasible. This final step takes all of the proposed uses that meet these requirements and ranks them in order of value or rate of return. While ranking proposed uses, it is also helpful to consider the risk associated with the proposed use. For example, one proposed use might generate a much higher internal rate of return than all of the other proposed uses. Yet, the reason for the high return may be related to the higher risk of that project. One way to adjust for the risk associated with a proposed use is to apply a discount rate that is commensurate with the level of risk while computing the net present value. In the end, the proposed use with the highest internal rate of retum and net present value is
Market Research
Before we advise our clients on any investment, it’s crucial that we understand the market in which the development lays
location plays a key role in determining the performance of an investment property. Location will impact property prices, rental rates, rental expenses, the tenants you attract, and the appreciation of your property. Therefore, to guarantee good retums our clients investments, we begin with analyzing the location to ensure it is a good real estate market. Here are some of the features of top rental markets to watch out for:
• Population growth and demographic data
• Economic growth impact on the real estate sector
• Employment and job market . Good price-to-rent ratio
• Prevailing insurance costs
• Existing property taxes and rates
We also conduct real estate market analysis by checking city data and insights. This includes median property price, average rental income, cap rate, cash on cash return, Airbnb occupancy rate, and more.
If we find that the investment property is located in a bad housing market, we move on. Take your time to research different housing markets. We don’t limit our clients scope
