Commonly known as PFS among real estate professionals, the project feasibility study is an essential tool for the investor in a proposed real estate project. It is a collection of important information analyzed by an industry professional that answers the fundamental questions related to returns and the bottomline. Only licensed real estate consultants (REC) are qualified to execute and sign PFSs. The study may thereafter be used for loan applications, presentation to potential investors, or simply to ascertain the probability of success of a proposed project.
However, the legal qualifications of an REC does not preclude one from conducting his own PFS. The only negative consequence of this approach is that outside parties would not be easily convinced as to the soundness of findings and conclusions. Banks and other financial institutions would still require a professional opinion from a third party. Potential investors would be more convinced if an REC is involved in the preparation of a PFS. In short, for proposed projects seeking leverage, a PFS completed and vouched for by a licensed REC presents more credibility.
The Parts of a Real Estate PFS
Typically, the PFS is composed of at least four segments. They are the market analysis, technical study, competitive analysis, and financial feasibility. But it must be noted that the parts of a PFS are not limited to four, since every proposed project possesses varying requirements and atypical dimensions that are dictated by the complexity of the work presented to the REC.
A market analysis tells the potential investors of the current contours of the business environment where the project is to take root. It considers both national and local economies to guide the REC in shaping the general concept of a specific proposal. After deciding what type of development is best suited to the existing market, the client and the REC proceed to the next steps.
The technical study may involve other professionals such as engineers, architects, landscape architects, and interior designers. The purpose of a technical study is the physical design of a proposed project. From the interiors to the landscape, the design professionals determine the complete appearance of the new space considered. Engineers and contractors may then move to estimate the quantity and costs required to complete the project.
Competitive analysis offers comparatives in terms of design and market segments targeted. It enumerates similarly constructed developments and reviews their strengths and weaknesses in relation to the proposed concept.
Finally, the most important section of the PFS to investors is the financial feasibility analysis. It tells the reader if the intended development is worth investing in. This part of the study gauges the projected success in a manner that is easy to understand yet supported by scientific and mathematical methods. In situations where the REC is not a certified public accountant (CPA), the latter may be hired for the specific purpose of providing sound financial reviews in the conduct of the PFS.
Measures of Profitability
It is not novel for an REC to hear the phrase "return of investment" (ROI) from lay persons. Though it is true that this measure of financial success is used in the PFS, it is not the exclusive determinant of the soundness of an investment. The following are some examples of other profitability indices:
Net Profit After Tax. This indicates the projected profits after deducting tax obligations. It is usually described in terms of money.
Payback Period. One of the easiest concepts to understand is payback. After all the computations of expenses and revenue, the investor may ask how long it would take for his money to return. Time is the unit of measure in this case.
Net Present Value. A result of considering all present values projected annually, the NPV is useful in weighing in the actual value of money at a given point in time. A peso today is not the same value as a peso in the future. The advantage of presenting all present values of a peso, as compared to its future values, is important in ascertaining the power of investments through time.
Profitability Index. This is the present value of future cashflows divided by initial investment. Expressed in real numbers, the investor may understand the efficiency of his money throughout the life cycle of the project.
Even the common ROI is classified into "arithmetic" or "geometric," where differences lie in the mathematical construct of their behaviors.
As in any serious consideration of a business endeavor, it pays to understand the complete terrain of a proposed real estate project. A PFS is such a tool to assist the untrained investor in quantifying the risks and projected returns before even spending the first centavo. The proficient REC is equipped with sufficient training and experience in guiding a client from conceptualization to anticipation of future gains.
A minimal investment in hiring an REC to intelligently invest in real estate is but a drop in the client's ocean of future financial growth.
#titullo
However, the legal qualifications of an REC does not preclude one from conducting his own PFS. The only negative consequence of this approach is that outside parties would not be easily convinced as to the soundness of findings and conclusions. Banks and other financial institutions would still require a professional opinion from a third party. Potential investors would be more convinced if an REC is involved in the preparation of a PFS. In short, for proposed projects seeking leverage, a PFS completed and vouched for by a licensed REC presents more credibility.
The Parts of a Real Estate PFS
Typically, the PFS is composed of at least four segments. They are the market analysis, technical study, competitive analysis, and financial feasibility. But it must be noted that the parts of a PFS are not limited to four, since every proposed project possesses varying requirements and atypical dimensions that are dictated by the complexity of the work presented to the REC.
A market analysis tells the potential investors of the current contours of the business environment where the project is to take root. It considers both national and local economies to guide the REC in shaping the general concept of a specific proposal. After deciding what type of development is best suited to the existing market, the client and the REC proceed to the next steps.
The technical study may involve other professionals such as engineers, architects, landscape architects, and interior designers. The purpose of a technical study is the physical design of a proposed project. From the interiors to the landscape, the design professionals determine the complete appearance of the new space considered. Engineers and contractors may then move to estimate the quantity and costs required to complete the project.
Competitive analysis offers comparatives in terms of design and market segments targeted. It enumerates similarly constructed developments and reviews their strengths and weaknesses in relation to the proposed concept.
Finally, the most important section of the PFS to investors is the financial feasibility analysis. It tells the reader if the intended development is worth investing in. This part of the study gauges the projected success in a manner that is easy to understand yet supported by scientific and mathematical methods. In situations where the REC is not a certified public accountant (CPA), the latter may be hired for the specific purpose of providing sound financial reviews in the conduct of the PFS.
Measures of Profitability
It is not novel for an REC to hear the phrase "return of investment" (ROI) from lay persons. Though it is true that this measure of financial success is used in the PFS, it is not the exclusive determinant of the soundness of an investment. The following are some examples of other profitability indices:
Net Profit After Tax. This indicates the projected profits after deducting tax obligations. It is usually described in terms of money.
Payback Period. One of the easiest concepts to understand is payback. After all the computations of expenses and revenue, the investor may ask how long it would take for his money to return. Time is the unit of measure in this case.
Net Present Value. A result of considering all present values projected annually, the NPV is useful in weighing in the actual value of money at a given point in time. A peso today is not the same value as a peso in the future. The advantage of presenting all present values of a peso, as compared to its future values, is important in ascertaining the power of investments through time.
Profitability Index. This is the present value of future cashflows divided by initial investment. Expressed in real numbers, the investor may understand the efficiency of his money throughout the life cycle of the project.
Even the common ROI is classified into "arithmetic" or "geometric," where differences lie in the mathematical construct of their behaviors.
As in any serious consideration of a business endeavor, it pays to understand the complete terrain of a proposed real estate project. A PFS is such a tool to assist the untrained investor in quantifying the risks and projected returns before even spending the first centavo. The proficient REC is equipped with sufficient training and experience in guiding a client from conceptualization to anticipation of future gains.
A minimal investment in hiring an REC to intelligently invest in real estate is but a drop in the client's ocean of future financial growth.
#titullo