Real estate investors rely on a real estate feasibility study to evaluate a potential project. It is crucial for real estate investor to have a feasibility study done by Real Estate Consultant.
What is a Real Estate Feasibility Study?
A feasibility study in real estate is an analysis that is commonly conducted before undertaking development to find out if it is viable. When doing a feasibility study, a consultant is looking at different factors and conditions that impacting the project.
When conducting feasibility study, it is necessary to identify all the aspects of the project that need to come together to success in real estate investment. Failure to do so will expose to various risk that will hamper the development project.
A feasibility study’s scope will vary in line with the scale of the real estate project.
The Importance of a Feasibility Study in Real Estate
Conducting a thorough feasibility study in real estate can take you some time and likely cost you more money. However, the certainty that comes from knowing that your real estate project is not a shot in the dark gives you priceless peace of mind.
Some other reasons for conducting a feasibility study include:
1. Test Your Concept
When executing a real estate project, cost overruns can mean life or death for real estate investor. Therefore, before signing one check for the project, understand what costs that might incur.
Studying every aspect of a project is part of the DNA of a feasibility study, it helps in having a complete visibility of project costs. Once you have all the expenses at hand, you will then be able to tell, through the study, what overruns to expect and how to plan for them.
The more mistakes in cost that your feasibility study can uncover, the better. You would rather make these mistakes on paper than in the middle of a running project.
2. Strengthen Confidence in the Project
At the end of the day, the ultimate source of confidence for the project has to be its projected success. Depending on the result of the feasibility study, can develop (and deepen) a level of trust in the project.
In addition to giving confidence concerning the project, it can signal to other stakeholders that you may have a viable plan.
3. Supply Chain Management
If you run a business with prior projects on course, you should still carry out a feasibility study. Although that real estate project you are passionate about might be viable on paper, it still requires support from your supply chain. A feasibility study helps you determine if your overall business can take the strain of executing the new project successfully.
If this team is operating at capacity handling other projects across your business, a feasibility study will highlight this gap. As a result, you will need to decide on whether to bring in other contractors, hire new permanent team members, or put the proposed project on hold.
4. Assess Your Financing
For real estate projects, the finance question is a ‘go/no go’ factor when commissioning projects. One question you must settle before launching a project is how much financing you need for it.
Running a feasibility study can help you figure out if you are adequately capitalized for the project. If you are consulting bankers or other investors, you can’t speak to capitalization without having done a thorough feasibility test.
But capitalization isn’t the only finance-related issue such a study helps you figure out.
Cash flow considerations are another critical reason real estate projects tend to fail. Therefore, you need to run a feasibility study to ensure that not only do you have enough money to start the project, but you will have adequate financial flows to support it.
Components of a Feasibility Study
Every feasibility study will differ in its exact details. However, certain aspects run through all studies.
- Physical Feasibility
The location, shape and other particular characteristics of the land should match to the project needed.
- Technical Feasibility
The technical aspect of a feasibility study focuses on investigating if you have the technical capacity to pull the project off. It covers the technical team and other technical resources necessary for success.
2. Legal Feasibility
You need to find out if your project will contravene any laws and regulations. For example, you have to assess whether the zoning ordinance allows the project you want to put up a building.
3. Operational Feasibility
Does your project have the necessary operational infrastructure in place to deliver successfully? Furthermore, how will this project enhance the company’s overall operations?
A critical element of your project is the time it will take. Financially speaking, knowing your timelines helps you figure out how well capitalized you are for the project.
In addition, when you know what time frame you have to get the project done, you can better determine what buffers to put in place
4. Financial Feasibility
The financial feasibility is important to have knowledge on what are the project cost and sources that can be tapped for the project.
Environmental feasibility is important in determining the possible impact of various calamities, impacts of the project to the environment and the community.
A feasibility study helps you arrive at a realistic schedule for getting the project done. That then enables you to track the necessary metrics as the development goes on.