Updated: Jun 24, 2020
When going down the path of an investor, property is always on one's minds. To better understand it, MCM invented the Property Investment Life Cycle (PILC) to ease the property investing process. By looking at the different stages of a property as it develops over time, investors can begin to understand where the profit margins lie.
What is it?
The PILC consists of the following property development stages:
When finding potential projects to invest in around the world, they may fall into one of the above 6 stages. Depending on what you're interested in, as well as your risk profile and investing tendencies, the PILC is a good framework to give you a head start in understanding a project. Let's go through each stage:
All properties need land before they can even start. In this case, land is the 'raw material' for just about every property development. As a budding investor, you need to know just what kind of land is needed for an upcoming project:
Is it the right type? Is the land fit for agricultural projects, or is it better suited for industrial ones? Are there any environmental factors that may hinder project growth? If it's a residential project, does it connect well with surrounding facilities (public transport, hospitals, etc.)?
Is it at the right location? The area could already be matured, which could lead to a steady interest. If it's an upcoming developing location, there may be a spike in valuation over time. It's up to you to determine that as an investor!
Is it the right size? The project may not be big enough to meet demand around the area. The individual unit size may or may not meet the demands of the demographic it is attempting to serve.
Construction/ Property Development
This part of the cycle holds the largest profit earning ratio in the Property Development Life Cycle (PDLC). Generally, this space is mostly occupied by larger companies, since there is a need for large capital and expertise and these companies have that.
One thing to take note here is what kind of agreements are available for investors. Will there be a leaseback/rent back option? Who will bear the outgoing expenses, such as legal documents and construction interest? Are there any packages that add to your convenience? Remember that as the investor, you hold a level of responsibility over the development of the property, even if you aren't 'physically' building it. Ensure that parties have agreed clearly on what responsibilities they will bear.
Management is key to ensuring that the valuation will increase over time. With quality management and optimization of space usage, the property's ultimate value will grow steadily
Renovation is a necessary stage because it adds to the functionality and aesthetic of the property. Any additions to these aspects mean that the property price will increase.
Maxshangkar of MCM stated this:
Renovation is like adding the soul into the body.
Sometimes, properties can become under-valued. These can be because of poor management, lacking financials or due to being abandoned. Simple renovation may not be enough. Plenty of incentives exist around the world to encourage refurbishment. For example, in the UK and Germany, it is encouraged to refurbish historical buildings to revive and maintain their value, both historically and financially.
Beyond refurbishment comes redevelopment: in case a current property does not meet market demand, it may get redeveloped entirely. Another reason is that the building may get destroyed due to disasters, both man-made (fires) and natural (earthquakes and volcano eruptions).
There are other important factors to consider, such as demographics, location and overall stability of the country. Pair that with your profile as a property investor, and you can start building your experience over time as you look at more projects!
To find out more about PILC and how you can get involved, contact MCM today!