{"id":3064,"date":"2024-06-21T15:37:11","date_gmt":"2024-06-21T11:37:11","guid":{"rendered":"https:\/\/eoninvestment.com\/?p=3064"},"modified":"2025-02-04T17:53:26","modified_gmt":"2025-02-04T13:53:26","slug":"profitable-pricing-in-real-estate","status":"publish","type":"post","link":"https:\/\/eoninvestment.com\/ka\/2024\/06\/21\/profitable-pricing-in-real-estate\/","title":{"rendered":"Profitable Pricing in Real Estate"},"content":{"rendered":"\n

The structure and process of pricing have an extremely significant impact on the success of a residential development project. Proper management of prices not only achieves the targeted profit but also regulates the project’s financial risks (such as cost inflation and liquidity).<\/p>\n\n\n\n

A pricing system usually has two conflicting goals: 1. Maximizing prices and 2. Maximizing cash flow.<\/p>\n\n\n\n

Maximizing Prices:<\/h3>\n\n\n\n

To achieve the highest possible prices, it is necessary to maintain the apartment assortment until the end of the project. This involves not merely setting different prices but instant and profitable price adjustments based on sales transactions.<\/p>\n\n\n\n

For example, if a two-year project has 24 identical two-room apartments, it is better to sell one per month, gradually increasing the prices, rather than selling all of them within three months at lower prices and having no similar products to offer in this segment for the rest of the project.<\/p>\n\n\n\n

Moreover, besides the number of rooms, the products are segmented by many parameters – views, sunlight exposure, ergonomics, floor level, etc. The task of pricing is to consider and manage this entire assortment.<\/p>\n\n\n\n

Maximizing Cash Inflow:<\/h3>\n\n\n\n

Profitability lies in the proportion relative to the invested amount. Development is profitable not because of high margins (in reality, the margin is very low) but due to a high return on the invested amount.<\/p>\n\n\n\n

Therefore, during the sales process, the pricing system must ensure the maximization of the cash portion in relation to the concluded transactions, considering the constraints on what percentage (even of own) money is invested in the project.<\/p>\n\n\n\n

To achieve this goal, we create an Excel model that takes into account, on one hand, the standard payment schedule and corresponding price, and on the other hand, the individual schedule tailored for the client. The discount system calculated by the model ensures the buyer’s motivation to bring in as much money as possible, as soon as possible.<\/p>\n\n\n\n

This is not about a rigid discount system that developers usually have \u2013 it’s about precise and thoughtful discounts based on the specific buyer’s capabilities. According to our model, even if the buyer brings in one lari earlier than the standard schedule by a month, they will receive the corresponding calculated discount.<\/p>\n\n\n\n

For example, in the table below, the price is $1000\/sq.m., with a condition requiring the buyer to cover 30% of the cost before the construction is completed. If the buyer doesn’t have the lump sum at the start but can pay $2000 per month, since this payment distribution over time is better for the company than the standard condition, they can receive a discount – in our case, a 6% annual discount amounts to $30 per sq.m.:<\/p>\n\n\n\n

The Excel file is here:<\/a><\/p>\n\n\n\n

P.S.<\/h3>\n\n\n\n

Based on our experience and firm belief, proper management of these two components in pricing allows for an additional 10% price increase, which in some projects means doubling the profit.<\/p>\n\n\n\n

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