The first principle of property development is location. This should stress more on location suitability for what type of property projects should be profitable. For a retail mart construction project, for instance, it is recommended to study the demography and population size of the location to determine the number of potential consumers and their buying and consuming behaviors, including competitors around that location. Shop owners who do not have their own buildings for retail marts always look for ones that suit their purposes.
After a study on the location, it is necessary to study RoI (Return of Investment) of the investment project of the construction. It is generally recommended to consider the whole costs of construction, its materials and price of land. Then a projection of the profit generated from the use of the building for a fixed period of time has to be made. The projected profit has to be compared to the periodic bank interest pay in order to analyze whether the profit outstrips the pay from the bank interest. For a good return, the projected profits should at least triple the bank interest pay. If the profit from the use of the building is the same or just a little higher than the bank interest, it is not recommended to invest in that construction project, since depositing that money in the bank for an interest pay sounds far better and costs no effort.
The last principle is the operation and management of the properties that have to be considered by property owners who are considering a construction project investment. For inexperienced property investors, they are recommended to consider leasing the building to a trusted outsider who is willing to take over the building and manage it as his own business such as a retail store, school, or serviced office building or apartment.
Even if self-management of the building is sometimes beneficial, improper management and marketing can lead to an unfavorable result. For small-scale property investment project such as residential serviced apartment and office buildings, owners are recommended to outsource their operations, marketing and management to any trusted property management agencies in order to spare more time and focus on other construction projects. Profits from the leasing can be good enough to secure and settle bank loans for the other ongoing construction projects.
Last but not least, it is important to manage cashflow effectively in order to stay well in business. For five years ago, most people were so greedy and tended to have no patience at all when it comes to buying and selling real estate and properties. Real estate bubbles made a handful of people wealthy but most ended up with cashflow crises. Price hikes of land drew hundreds of million US dollars from impatient buyers and froze that money without creating any economic activities and values. As a result, this trend badly affected the country’s economy as a whole. From that lesson, before developing a property, it is recommended to study the demand, economic value that the property creates for the tenant and its vacant period in order to ensure a smooth clashflow that eases a bank loan settlement and other ongoing project spending.
Contributed by Chrek Soknim
Worded by Hoem Seiha