LESSON 4
Feasibility Studies and Leasing Residential Properties
Assigned Reading
1.
Real Estate Division. 2009. Residential Property Management. Vancouver: UBC Real Estate
Division.
Chapter 5: Feasibility Studies.
Chapter 6: Residential Properties and Leasing.
Recommended Reading
Selected recommended readings can be found under "Online Readings" on your Course Resources webpage.
1.
Real Estate Division. 2010. Rental Property Management. Vancouver: UBC Real Estate Division.
Chapter 12: Effective Negotiations and Alternative Dispute Resolution.
Learning Objectives
Upon completion of this lesson, the student should be able to:
1.
Explain what a feasibility study is and recognize when one is needed.
2.
Describe the key steps in the process of preparing a feasibility study and prepare the terms of reference
(or specifications).
3.
List the steps required to perform a market analysis.
4.
Evaluate the findings of a feasibility study and be able to effectively report these and submit
recommendations to an owner/investor using a proper financial analysis.
5.
Identify the types of residential property requiring management.
6.
Discuss why owners/landlords lease their properties and describe those who seek rental accommodation.
7.
Describe the marketing process and develop a marketing plan.
8.
Describe the different types of tenure and the essential elements of a tenancy agreement.
9.
Control the process of tenant selection and the use of tenant inducements to consummate a lease.
Instructor's Comments
Chapter 5 discusses feasibility studies, a crucial part of the development process and also very important to
property managers. They provide real estate professionals with an opportunity to examine the finer details
surrounding a new development or rehabilitation project and to assess whether the project is likely to succeed or
not. A feasibility study will point out any potential weaknesses, facilitating necessary adjustments or even
terminating the project altogether.
4.1
Lesson 4
The feasibility analysis requires close consideration, as the process will not be identical for any two projects.
The first major decision needed is to determine whether to conduct the study internally or to hire an external
consultant to do the task instead. There are advantages and disadvantages to both methods, and the skill set of
the professionals involved and their project will help determine which route is the best to take.
The study itself is meant to answer questions. Prior to the initiation of the study, the professional will need to
identify the questions that he or she wishes to answer throughout the process. Knowing what he or she wants to
get out of the study increases the usefulness of the final product. Making a detailed outline, or creating terms of
reference, is a good way to organize the study and to determine what steps need to be done to answer the
questions that have been raised. Once the study is outlined, the next step will be acquiring and analysing the
information in order to find answers. There are a variety of resources, both primary and secondary, available to
an individual conducting a feasibility study. The most complete studies will use both primary and secondary data
to reach the conclusions in both the market analysis and the financial analysis. They will also require a strong
degree of analysis and judgement to interpret the findings, thus it is imperative that the individual or individuals
undertaking the study are knowledgeable and experienced.
It is important that the professional and the consultant (if any) periodically review the results to date of the study.
This will allow any necessary clarifications to be made, and will highlight changes that should be made before
proceeding to the next step. These review periods provide the opportunity to re-evaluate the project and its
potential for success.
Upon the completion of the feasibility study, the professional should have a more detailed picture of their project
and a better understanding of its likelihood to succeed, given the conditions found from the research. The results
will guide the decision on whether they should move forward with the project or not, and whether they need to
make any changes in their plans. Feasibility studies can be costly, in terms of both time and money. However,
they will save time and money in the long run, as they highlight any foreseeable risks and encourage adaptation
to current market and financial conditions. Though feasibility studies cannot guarantee the elimination of all
forms of risk, they can certainly identify potential red flags and can help fine-tune details of the project.
Chapter 6 discusses the task of leasing a property with success. A property manager must be familiar with the
various types of residential units available and must understand the reasons a homeowner will choose to rent
their residence. Equally important to understand are the reasons that a renter will opt to rent, rather than to
make an outright purchase of a home. Different types of tenants will have varying motivations for renting.
Broadly, renters are categorized into one of two groups: renters by choice and renters of necessity. Both groups
exhibit different characteristics, and the elements they seek in a rental home will vary considerably.
A successful rental program will be driven by a strong marketing plan. The purpose of the marketing plan is to
promote the residence, and to attract the potential tenants who are best suited for it. The selection of the form of
media used to reach the tenants is an important choice, as different types of tenants will likely be exposed to
different kinds of media. A successful marketing plan requires a strong understanding of the residence itself as
well as the surrounding areas. Potential tenants will likely have a variety of questions, and it is essential that
they receive complete and satisfactory answers.
Once the research has been completed and the tenants have been attracted through effective marketing, the next
stage involves evaluating and selecting the best tenant for the residence. It is important to understand the factors
that make a tenant desirable, and to acknowledge what type of tenant is best suited for the residence. Interviews
and thorough background checks will contribute to a strong tenant selection process. When the tenant is
selected, the lease or tenancy agreement must be established. The terms of the lease will vary with each
individual tenant and residence, but all details and expectations should be clearly identified while abiding to
existing laws. A well-negotiated lease with a properly selected tenant will improve the relations between the
landlord, tenant, and property manager.
4.2
Feasibility Studies and Leasing Residential Properties
Review and Discussion Questions
1.
Chelsie Blue is the property manager of a large site in Winnipeg. The existing use is light industrial, as
permitted by the current zoning. Chelsie is concerned because other properties in the area have recently
been redeveloped to higher density residential uses. Consequently, she feels that a feasibility study
should be done to assess whether or not the property would be better suited for redevelopment to multifamily residential use.
(a)
(b)
Explain to Chelsie the difference between primary and secondary data and identify two primary
and two secondary sources of information that would be useful in this particular study
(redeveloping to residential use). Describe why these sources are relevant.
Help Chelsie write a one page request for proposal letter to a consultant requesting a proposal
for the feasibility study.
2.
Refer to Figure 3 in Chapter 5, "Sample Executive Summary for a Residential Market Analysis". If
you were a developer who had hired a consultant to perform a market analysis and received this
summary, what questions would you ask based on the results? List at least five questions. Visit the
course discussion forum and discuss your questions with your classmates.
3.
List the steps typically taken when a consultant and a developer are developing terms of reference.
Explain the purpose of each step.
4.
Discuss the differences between "renters by choice" and "renters of necessity". Include one example of
each type of renter.
5.
You are preparing an advertising plan for the three following types of tenants. For each type, list three
specific types of media you would use to get in touch with your target audience. Be specific – for
example, instead of listing "newspaper", list a particular newspaper you are familiar with that would be
appropriate for the target tenant.
(a)
(b)
(c)
6.
Couples with children
Empty nesters
Senior citizens
In analyzing rental applications, there are a number of elements to consider: financial, source of
income, employment, etc. For each element, indicate sources of information to determine a tenant's
suitability, including both existing data and people or organizations you could contact.
4.3
Lesson 4
ASSIGNMENT 4
CHAPTER 5: Feasibility Studies
CHAPTER 6: Residential Properties and Leasing
Marks: 1 mark per question.
1.
The specific content and format of a feasibility study report will vary with the:
A.
B.
C.
D.
E.
(1)
(2)
(3)
(4)
2.
All of the above options are true.
Options B, D, and E are true.
Options B, C, D and E are true.
Options A and C are true.
Which of the following is NOT an advantage of using a consultant to conduct the feasibility study?
(1)
(2)
(3)
(4)
3.
recommendation of the study.
nature of the subject development.
style of the analyst.
scope of the analysis.
intended use of the feasibility study.
A consultant will be less costly than doing the study in-house.
A consultant may have more experience in conducting feasibility analysis.
A consultant may have more ready access to data.
A consultant is likely to be more objective towards the development or investment.
Secondary data:
(1)
(2)
(3)
(4)
includes field work, or inspections of sites related to the project.
is information that has been assembled by the analyst.
consists of interviews with planners, real estate brokers, and developers active in the market.
is information that has been gathered and published by someone else.
***Assignment 4 continued on next page***
4.4
Feasibility Studies and Leasing Residential Properties
4.
Which of the following statements best describes the differences between a feasibility study and an
appraisal?
(1)
(2)
(3)
(4)
5.
Which of the following statements is FALSE?
(1)
(2)
(3)
(4)
6.
The golden rule of making comparisons with the competition is "compare like with like".
Analyzing the inventory includes looking at existing units in the neighbourhood, as well as any
new developments that are planned.
When analyzing the rental rate, only rentals with term leases should be examined.
A review of the household income statistics in the nearby community will indicate the
affordable rental range for the building.
Of the following situations, which would NOT benefit from a feasibility study?
(1)
(2)
(3)
(4)
7.
A feasibility study is conducted by a real estate expert who has obtained professional
accreditation, whereas an appraisal can be conducted by any individual.
A feasibility study focuses on marketing and economic aspects of the project, including
neighbourhood studies and tenant profiles, whereas an appraisal focuses on the financial
analysis aspects of the project.
A feasibility study is useful early in the process, before the development concept and schedule
have been established, whereas an appraisal is usually commissioned after the development
concept and schedule have been set.
A single feasibility study can be applied to many different properties in different locations at
different points in time, whereas a single appraisal can only be used on a specific project on a
specific site at a specific point in time.
A property owner seeking the highest and best use of a site.
A property owner wanting to decide on the colour scheme to use throughout the suites of a
residential project.
A developer looking to determine when to develop a particular project.
A developer wondering how much a project will rent for.
Which of the following statements is FALSE?
(1)
(2)
(3)
(4)
The sources of data used in a feasibility report must be clearly indicated.
If technical language is included in the report, it should be meaningful to the intended audience.
A feasibility report must be between 20-25 pages.
In the findings and conclusions of the report, there should be answers to the initial questions.
***Assignment 4 continued on next page***
4.5
Lesson 4
8.
Which of the following statements is/are TRUE?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
9.
All of the above statements are true.
Only statements A, B, and D are true.
Only statements C and D are true.
Only statements A and B are true.
Which of the following statements is/are FALSE?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
10.
An owner might hire a consultant if they do not have the time or interest required to
complete the feasibility study himself or herself.
When comparing a property, important factors to consider include the location and age
of the building.
When an analyst is analyzing the implications for a project, he or she will need to
consider whether the project might be unsuccessful under any circumstances.
To complete the financial analysis, the analyst must include components of revenues,
costs, and financial parameters.
A feasibility study is a review and analysis of the factors that can influence the market
and financial performance of a real estate development or investment.
There is no legal constraint on who may conduct a feasibility study.
A feasibility study will eliminate all uncertainty associated with analyzing and
forecasting market conditions.
A feasibility study involves the application of a variety of analytic techniques as well
as subjective judgment.
All of the above statements are true.
Only statement C is false.
Only statement B is false.
Only statements A and D are false.
Which of the following statements is TRUE?
(1)
(2)
(3)
(4)
Typical tenant profiles can be established by looking at various demographics.
Canada Mortgage and Housing Corporation statistics are a good resource for primary data.
A typical time frame to develop the marketing plan is 2-3 years.
A comprehensive residential market analysis will include an estimated total absorption of the
product.
JB: without having read the chapter, are 1 and 3 arguable?
1 – could these be used to develop tenant profiles? There may be more and other factors that could help do
a better job, but if this was all you had, could you do it? If yes, then this cannot be false in all
circumstances.
3 – similarly, there may be other good sources too, but could these not be argued to provide some good info
too? If so, then cannot be false in all circumstances too. [Changed—will need to change answer guide]
Need to make more false, “The only sources are” or “The key sources are”
***Assignment 4 continued on next page***
4.6
Feasibility Studies and Leasing Residential Properties
11.
Which of the following best describes a strata council in a condominium?
(1)
(2)
(3)
(4)
12.
Which of the following considerations will likely have the LEAST impact on recommendations for lease
term?
(1)
(2)
(3)
(4)
13.
(2)
(3)
(4)
A residence in which each member holds an interest in the corporation, partnership, or trust
that holds title to the property.
A property providing freehold ownership of a strata unit together with the use of common
property and facilities jointly owned with all other strata unit owners.
Housing for students attending universities and colleges, providing sleeping and study facilities
and communal washrooms and dining rooms.
Single buildings consisting of self-contained suites meant to serve retirees.
Which of the following is NOT a right for a tenant?
(1)
(2)
(3)
(4)
15.
The rental range.
Tenant inducements.
The ability to renew.
The age of the building.
Which of the following statements best defines a cooperative?
(1)
14.
A group that makes decisions for all matters relating to the administration of the condominium
complex and its common property and facilities.
Contractors hired by the condominium owners to clean the common property and facilities.
The owners of all individual units, parking areas, landscaped areas, garbage disposal areas,
swimming pool, and other recreational facilities on the property.
A group of self-appointed individuals who plan social activities for the residents of the
condominium.
The right to use and enjoy the property.
The right to renovate and rehabilitate.
The right to privacy.
The right to quiet enjoyment.
Which of the following BEST explains why a renter of necessity will rent, rather than purchase a home?
(1)
(2)
(3)
(4)
To better suit their lifestyle.
To minimize the need to do household chores and perform maintenance and upkeep, thus
maximizing leisure time.
Due to financial restrictions or other circumstances over which they have no control.
Due to proximity to their place of employment.
***Assignment 4 continued on next page***
4.7
Lesson 4
16.
The following is a definition for what term?
"Any occupancy or tenancy that is automatically renewed on the last day of the term for a further term
of the same length."
(1)
(2)
(3)
(4)
17.
Which of the following statements is TRUE?
(1)
(2)
(3)
(4)
18.
To be considered a legal contract, the duration of a lease must be fixed term.
When an owner leases their residence, their plans for the future of the residence will impact
decisions regarding maintenance, repairs, and tenant selection.
The property manager's primary responsibility is to ensure that the tenant's objectives for the
property are met.
When an owner leases their residence, the owner is always the property manager.
Which of the following statements is FALSE?
(1)
(2)
(3)
(4)
19.
Tenancy at sufferance.
Tenancy at will.
Term certain.
Periodic tenancy.
The marketability of a building is greatly influenced by its age and physical condition.
The cost per square foot for renovations is typically much more than the construction cost of a
new building.
Location is often considered the prime contributor to the success of a residential building.
When determining appropriate advertising methods, the first consideration should be, "Where
can the greatest impact be attained?"
In establishing the time frame for the marketing plan, which of the following activities should be done
first?
(1)
(2)
(3)
(4)
Research and analysis.
Open houses.
Design of brochures, advertising layout, and signs.
Tenancy negotiations.
***Assignment 4 continued on next page***
4.8
Feasibility Studies and Leasing Residential Properties
20.
Which of the following is NOT a reasonable explanation for why an owner would lease their residence?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
The property was purchased by the owner as a revenue producing investment.
The owner has been transferred to another city, but the owner wishes to retain the
house and re-occupy it in the future.
The property was purchased in a good market as a future retirement home.
The property is inherited as part of an estate, and the owner wishes to lease it while
waiting for the right opportunity or until their retirement.
All of the above statements are true.
Only statements A, B, and D are true.
Only statements A and C are true.
Only statements B, C, and D are true.
Planning Ahead
Note that Project 1 is due in two weeks, on the same due date as Assignment 6. You should be well
advanced into the work required for this project by now.
***End of Assignment 4***
4.9