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Summary Unit 7 - Business Decision Making: Housing Industry Report
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Unit 7 - Business Decision Making: Housing Industry Report
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Sami UddinIntroduction
In this report I am going to be advising a client who is a small business that offers building
renovations (improvements), maintenance and repairs for local homeowners. The client has asked
me to recommend which option it should choose for the future development of the business. The
aim of the development is to be able to increase the business profitability and the value. I will be
evaluating and analysing these two options to identify the strengths and the weaknesses of the two
options that it possess. The two options that could be considered:
Option 1: Buy and renovate four existing houses to rent
Option 2: Buy a plot of land and build three houses to sell
Key factors and risks
I am going to be looking at the current business, the state of the market it is in as it stands and
potential trends there is and competitors. There is a strong market for rental properties with 40 to
60% of 18 to 34 year olds are renting. My client’s market shows that the demand for new houses
continue to grow at a greater rate than supply with the rents being on an increase by 18% from 2012
to 2018. This can create an opportunity in being able to rent homes to others in order to build a
consistent income.
Research suggests that the UK will need at least 240,000 more houses every year from now 2029. If
there isn’t enough houses built to meet the demand then the house prices will continue to increase
and also there is will be a huge cost in terms of building houses as it requires a variety of machines
and materials. This will lead to the difficulty of selling houses to average income people making this a
threat as they will not be able to afford it. It can also be an opportunity as the higher the house price
is the higher you can make by either selling or renting out the houses.
The average house price in the UK is £245,000 this can be very expensive for someone with a low
income but also an opportunity to sell or rent as you can will receive an income from it consistently
by monthly payments. However, with the use of the government providing in terms of initiatives
which were to provide loans to builders to help get more housing developments started. With
interest rate being on the rise it means that it will have an effect on increasing the cost of
mortgages. This will create an opportunity as the market for rental properties will increase as less
people will be qualified for a mortgage for a house.
Implications for Resources
Physical Resources – The physical resources that are needed for option 1 is that there is a repair
cost of £11,000 for each house in order to renovate it successfully so that you are able to increase
the value of the house therefore increase the rent price of the house along with making the house
more energy efficient and modernised. As it is four houses to renovate the total repair cost will
come at £44,000. Along with the repair cost comes with special equipment needed which is included
in the repair cost. Also the houses are being sold altogether at £260,000.
The physical resources that are needed for option 2 is that there is a labour cost of £153,750 for
each house in order to fully develop the land and the house to be made and this will mean that you
are able to customize the houses in the way you want them to be and this will also increase the
value of the house. As it is three houses to build the total labour cost will be £461,250. The cost of
purchasing the piece of the land will be £175,000. There is also a raw materials cost that would be
£65,000 for each house making it altogether £195,000 for all three houses.
, Sami Uddin
Human Resources – The human resources that will be needed for option 1 is that there are 3 people
altogether for most of the building. There is one owner and two full time employees for the small
project in terms of renovating the four houses to rent. As there is full time employees they are
expected to be working 40 hours a week whereby they should be expecting to paid at least the
minimum wage per hour which is £8.91, therefore they expect a monthly wage of £1425.60 a
month. As the owner is the manager he has to treat his employees fairly and equally and also be
able to motivate them effectively in order to complete renovating the houses to the best standard.
The paternalistic management and Herzberg theory of motivation. With paternalistic management
style the leader acts like the father figure and takes care of their employees need. Herzberg theory
of motivation states that employees need a combination of motivators such as recognition and
achievement and also hygiene factors such as wages and bonus being paid to them.
The human resources that will be needed for option 2 is that as option 2 is a larger project to
complete due to buying the land and developing the houses, there is a need of employing temporary
skilled workers for the duration of completing the project which is develop the land and also build
the three houses to sell. All workers will want to expect at least their minimum wage being paid to
them for their share of the work that they have done and they also are expected to be treated
equally and fairly by the owner or manager. Therefore it will lead to the employees being motivated
and committed and be able to complete their job role correctly to the best standard.
Financial Resources – The financial resources that will be needed for option 1 is that the start up
cost will be £44,000 and also the purchase of the houses costing at £260,000 in order to fully
renovate the four existing houses to rent at a higher value in terms of rent income. From looking at
the Statement of Financial Position the owner has a total capital of £270,000 and if he uses that then
it will not be enough to cover the £44,000 and the £260,000, therefore the owner would need an
extra £34,000 from the bank as a loan to cover the cost.
The financial resources that will be needed for option 2 is that the total cost of the large project in
terms of building three new houses at a new land will be around £831,250 and in this includes the
cost of the land, raw materials and the labour costs. From looking at the Statement of Financial
Position the owner having a total capital of £270,000 will not be enough to cover the £831,250 as it
will put him into either getting a bank loan but will have to pay it off sooner to avoid any interest
that will be included in the future.
Time Resource – For option 1 it will take around 3 months to complete in renovating the four
houses to rent whereas for option 2 as it a larger project with building three new houses in a new
plot of land it will take around 12 months to fully build the houses to suitability it meets with the
house price to sell.
Financial Forecasts
Break-Even – For option 1 the total cost is £304,000 and the rental income for the year £21,600 this
would mean that it will take 14 years to Break-Even. The meaning of Break-Even is that you either
you make a profit nor a loss of a product.
For option 2 the total cost is £831,250 and the total revenue for the year £1,350,000 this would
mean that it will take less than a year to Break-Even as they are making a profit from selling the
houses.
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