by Homy Invest
The most common issues between most owners/developers/investors is the unclear scope and undefined requirements. Also, the gab between cost restrictions and investor ambitions is another major factor to limit down the value of capital invested. The info In this article are well-known to all people who are working in realestate sector, but we put it in simple form to give you a significant recommendations to improve your future investments…
Investor’s Mind
Let’s take a small example, where one investor wants to build a multistory building consists of certain number of apartments to lease in order to have a specific income per month with acceptable payback period with good return. Note that this is inside the investor mind!
In terms of cost, it should be limited to minimum budget as it’s commercial project not charity. Moreover, the number of flats shall be maximized to utilize the area efficiently as each meter square has to cover its cost with profit…
Last but not least, the maintenance cost should be minimum or zero as it’s losses from investor’s prospective.
Developer’s Mind
Now, the developer will take this scope of work to add more details such as: the number of rooms, baths, balconies, kitchens, spaces, accessibility, legal requirements, bank requirements to fund, capital limits, risk, the target leasing price. In other words, the developer will initiate the feasibility study of the investment with very shallow enhancement to the main scope of works…based on very generic viewpoint within the business streamline…
Consultant’s Mind
After getting the fund for the project and all legal requirements were fulfilled, the consultant start working to define in the finest details the scope of works and its components to come-up with the tailored solution based on Investor and developer guidelines…
Now, the mess starts dramatically, once the consultant submit its fees and the estimated accurate cost of the project via verified quantities surveyors and Bills of Quantities… Why?! very simple, the investor and developer though this project is similar to any other project they knew from their experience (which is very generic and shallow) and it wouldn’t cost this much of money!
The consultant will start squeezing the requirements to suit the available budget by reducing the quality, lowering down the standards, utilizing cheap materials, and so on.
Contractor’s Mind
Similar to any contractor in the world, increasing the profit is the most important aspect to focus on whatever project conditions; however, the contractor will be under huge pressure from owner, investor and consultant to finish the job on time without any delay regardless the unclear scope or requirements or even sudden changes! again with no extra cost! which is frankly unrealistic demand!
The contractor will price the project higher by certain percentage to overcome all those challenges and owners/investors/consultants know that and will try to cut it off as much as possible to cover the weakness in the scope of works and undefined requirements…
To make the story short, the contractor will do whatever they requested, lowering the quality to reduce the variation and cut costs by showing very cheap, available materials to show owners/investors/consultants that he is shortening the time period to finish-off the project so they can start leasing and making money where he bought those materials with a very very low prices due to its quality…
Leaser/Marketer’s Mind
Now, the project is completed and handed over for the marketing team to start leasing or selling units by a set price by the owners/investors to start recovering their money or start paying the bank its installments…
Unfortunately, the project is not up to the standards to compete with other properties, the prices are overrated for such properties, tenants demand lower prices to take them while the marketing/sales team is stuck with set-price and high expectations which are not linked by anyway to the market conditions…
The sales/marketing team will start using their magical skills to convince potential tenants with their properties and its side services such as: safety, maintenance, amenities, free rent months, and so on similar other tools where they make these properties as they are remarkably a lifetime opportunities.
Once again, they will succeed to certain extend for a while, and once the first year finished, the properties will be very old and requires huge maintenance where the owner will not do until the property is rented again to use the first rent for such maintenance! so the marketer is stuck again to promote it with the possible overpriced rent hoping to get rented with little bit discounted price…
Summary
Any issue you see at your realestate market is a result of the ambiguities summation throughout the whole realestate chain starting from owners up to leaser where in most occasions, the tenant will be the victim…
