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What is a feasibility study in real estate?
Are you thinking about taking the plunge into the exciting world of real estate investing or development? It can be a thrilling and rewarding venture, but it’s also important to be mindful of the potential risks and challenges that come with it. That’s where a real estate feasibility study comes in!
What is a feasibility study?
A study is an in-depth analysis of a proposed project to determine if it is practical, achievable and cost-effective. The main purpose of a study is to determine whether or not the project should be undertaken. It looks at various factors to help decision-makers identify potential pitfalls so that the risks can be mitigated before any decisions are made on whether or not to proceed with the project.
If you want to learn more about feasibility studies, check out our detailed guide on study here –> Feasibility Studies: The Essential Tool for Making Informed Business Decisions
What is a Real estate feasibility study?
Real estate feasibility studies are a crucial step in the development or acquisition of a property. These studies help investors, developers, lenders determine the viability of a proposed project by analyzing market demand, costs, and potential financial return. By conducting a thorough and detailed study, developers, investors, and lenders can gain a better understanding of the potential risks and challenges of a project, as well as any opportunities for growth or success. This can help to minimize the risk of project failure and ensure that the project is completed on time and within budget.
The importance of feasibility studies in real estate is highlighted by the findings of the KPMG Global Construction Survey. According to the survey:
- 53% of construction project owners experienced underperformance on at least one or more projects
- Only 31% of their projects in the past three years came within 10% of their budget
- Only 25% of their projects were delivered within 10% of their original deadlines
These statistics highlight the need for thorough planning and evaluation before proceeding with a real estate project. By conducting a study, developers and investors can identify potential problems and challenges and take steps to mitigate them, ultimately increasing the chances of project success.
Benefits of Real Estate Feasibility Study
Conducting a study can provide several benefits, including:
1) Identifying potential risks and opportunities
By evaluating the market data, historical performance, and other factors associated with a potential development project, a study will help identify potential risks and opportunities that could affect the success of the venture. This insight can help to inform decision-making and avoid costly mistakes.
2) Assessing market demand
One of the most important considerations for any real estate project is the local market demand for the proposed property (this includes including the number of potential buyers or tenants and the prices they are willing to pay). By analyzing trends in residential, commercial, or retail properties, a well-written study can provide insight into current and future levels of demand for a particular type of project in a given area.
3) Better financing options
A real estate economic feasibility study can be an essential tool for securing financing for a development project. By evaluating the financing options available, including potential sources of financing and the terms and conditions of each option, the report can help developers choose the most appropriate financing option for their project.
Additionally, lenders will often require a study as part of the loan application process to assess the viability of the project and determine the level of risk associated with the project. By providing a thorough analysis of the project’s financial viability, a study can help increase the chances of securing financing and ensure that the project is adequately funded.
4) Improved Return on Investment
The most obvious benefit of a real estate feasibility study is that it can help developers identify potential opportunities for improving the return on investment for the project. This may include identifying potential cost savings, identifying ways to increase revenues, or exploring alternative financing options that offer more favorable terms. By thoroughly evaluating the potential risks and rewards of the project, a report can help developers make informed decisions that can maximize the return on investment for the project.
Some added benefits of a real estate feasibility study include:
- Helps to optimize project design
- Assesses the potential impact on the local community including the economic, social, and environmental effects
- Assists in attracting tenants or buyers
- Increases transparency
- Develop a timeline for completing various aspects of a project
Components of a real estate feasibility study
A real estate study typically includes the following components:
1) Market analysis
Market analysis component looks at the current state of the local real estate market and assesses the demand for the type of property being proposed. It includes an analysis of trends in the market, such as the average price of similar properties in the area, the demand for rental or purchase, and the competition from other properties in the area.
Example: For example, if the project is a proposed apartment complex, the market analysis might examine the current rental rates for similar properties in the area, the occupancy rates of those properties, and the demand for rental housing in the area.
Importance
The market analysis is important because it helps to determine the potential profitability of the project.
2) Site analysis
Site analysis component evaluates the physical characteristics of the site and assesses its suitability for the proposed development. It includes an analysis of the location of the site, its size and topography, and its access to utilities and transportation.
Example: For example, a site analysis might look at the proximity of the site to schools, hospitals, and other amenities, as well as the accessibility of the site for vehicles and pedestrians.
Importance
The site analysis is important because it helps to determine the feasibility of the project from a physical standpoint, as well as the potential costs of preparing the site for development.
3) Financial analysis
Financial analysis component assesses the feasibility of the project from a financial standpoint, including projected costs, revenue, and profitability. It includes an analysis of the projected costs of construction, financing, and operating expenses, as well as the expected revenue from rental or sales of the property.
Example: For example, a financial analysis might examine the projected costs of materials, labor, and financing, as well as the expected rental income or sales price of the completed property.
Importance
The financial analysis is important because it helps to determine the overall viability of the project and whether it is likely to be profitable.
4) Legal analysis
Legal analysis component reviews any legal issues or constraints that may impact the development, such as zoning regulations, environmental regulations, and land use restrictions. It includes an analysis of the zoning of the site and any necessary permits or approvals that may be required.
Example: For example, a legal analysis might examine the zoning of the site to ensure that the proposed development is permitted under local laws, or it might assess the need for any environmental permits or approvals.
Importance
The legal analysis is important because it helps to identify any potential legal hurdles that may need to be overcome in order to proceed with the development.
5) Architectural and engineering analysis
Architectural and engineering analysis assesses the feasibility and cost of the proposed development from a design and construction standpoint. It may include an analysis of the structural integrity of an existing building, if applicable, as well as the cost and feasibility of any necessary renovations or new construction.
Example: For example, an architectural and engineering analysis might examine the condition of the roof and foundation of an existing building to determine the cost of necessary repairs or upgrades.
Importance
The architectural and engineering analysis is important because it helps to determine the feasibility and cost of the proposed development from a design and construction standpoint.
6) Environmental analysis
Environmental analysis evaluates the potential environmental impacts of the development and assesses the need for any environmental permits. It may include an analysis of the potential impact on local water and air quality, as well as the potential for soil contamination.
Example: For example, an environmental analysis might examine the potential impact of a development on a nearby wetland or the need for a permit to disturb protected habitat.
Importance
The environmental analysis is important because it helps to identify any potential environmental impacts of the development and ensure that it is in compliance with environmental regulations.
7) Risk analysis
Risk analysis assesses the potential risks associated with the project, including market, financial, and legal risks. It may include an analysis of the potential for changes in the local real estate market that could impact the profitability of the project, as well as the potential for legal challenges or other unforeseen events that could impact the development.
Example: For example, a risk analysis might examine the potential for a natural disaster to impact the development or the possibility of a zoning change that could impact the use of the property.
Importance
The risk analysis is important because it helps to identify and assess potential risks that could impact the success of the project.
Real estate feasibility study cost
The cost of such study can vary widely depending on the size and complexity of the project. A few factors that can influence the cost of a study include:
1) Scope of the study
A document can range from a simple analysis of a single property to a comprehensive analysis of a large development project. The more complex and comprehensive the study, the more it will cost.
2) Type of property
The cost of a study can also be influenced by the type of property being analyzed. For example, a study of a commercial property may be more complex and costly than a study of a residential property.
3) Location of the property
The cost of a study may also be influenced by the location of the property. For example, a study of a property in a highly desirable location may be more expensive than a study of a property in a less desirable location.
4) Level of detail required
The level of detail required in a report can also affect its cost. A more detailed study that includes extensive market research and financial analysis will generally be more expensive than a less detailed study.
It’s generally a good idea to hire an expert to prepare a commercial study, especially if you are considering a large or complex project. Feasibility studies are time-consuming and require a thorough understanding of real estate market trends, development costs, and financial analysis techniques. An expert with experience in conducting feasibility studies will be able to provide a comprehensive analysis of the project and identify potential risks and opportunities that you may not have even considered.
OGSCapital Feasibility Study Consultants
Are you ready to launch a new real estate project or venture and want to ensure its success from the beginning by preparing a perfect real estate market feasibility study? Look no further than OGSCapital.
Over the past 16 years, our team of experts at OGSCapital has helped businesses attract billions of dollars in financing and helped entrepreneurs build successful businesses worldwide. Our team of experts are dedicated to conducting thorough, reliable report of your real estate project to determine whether it is technically, financially, and legally feasible.
But what makes OGSCapital special? Unlike other consulting firms that use templates or ready-made solutions, we create each and every document from scratch, customized to your unique needs and goals. This personalized approach ensures that our study reports are comprehensive and accurate, giving you the confidence to make informed decisions about your project.
But we don’t just stop at the study. At OGSCapital, we are committed to providing results-oriented solutions that help our clients achieve their goals. Our team conducts thorough market research and provides strategic advice to help you plan for the future and identify potential growth opportunities. Our experienced professionals have a deep understanding of best practices in feasibility studies and are dedicated to providing guidance and support throughout the process.
Don’t take the risk of investing in a project that may not be viable. Take the first step towards realizing your real estate dreams by contacting OGSCapital today. Our team will conduct a comprehensive feasibility study and set your project on the path to success. Don’t wait – Contact Us now to learn more.
FAQ
1) How do I write a feasibility study plan?
Study requires a thorough understanding of the project, as well as expertise in areas such as market research, financial analysis, and project management. Hence, it’s not recommended to prepare a study yourself.
Instead, you can always consult our team of experts at OGSCapital who will ensure that the study is thorough and accurate, and will help identify potential risks and challenges that may impact the success of the project.
2) How long does a feasibility study for real estate take?
The duration of a study for real estate can vary depending on the scope and complexity of the project. In general, a report for a small, straightforward project may take a few weeks to complete, while a more complex project could take longer. At OGSCapital, a comprehensive draft for a study is usually prepared in 20 days.
3) Who typically prepares a feasibility study?
Are you unsure about how to do a study for real estate? Our team of highly experienced real estate business plan consultants at OGSCapital have the skills and expertise to provide a thorough and accurate report. With over 60 consultants on staff, including senior team members with over 15 years of industry experience, we have the resources and knowledge to deliver high-quality results.
Our team has a strong track record in business plan development, investment banking, business consulting, financial modeling, due diligence, real estate study development, and market analysis, and is well-equipped to tackle projects of any size or complexity.
If you’re looking for a team of experts to prepare a study for your organization, consider partnering with OGSCapital. Contact us today to learn more about our services and to discuss your project needs.
OGSCapital’s team has assisted thousands of entrepreneurs with top-rated document, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.
