Real Estate Financial Model - First Development
Financial Plans Required
You always need to have a firm plan in place before you start a real estate development or investment. It is too easy to find out about a “great” deal and get committed before you actually run the numbers. You must know what you actually need to do to make a deal successful. Remember one of my previous posts. You make your money up front. Focus on the costs.
This sounds like a “no-brainer”, but take my word that it is easy to get caught up in the moment. Putting the model together can be hard. You don’t know what numbers to use for the various expenses. What numbers are realistic? Have I included everything? Take this to heart. It is a lot easier to find out about the costs of various items now instead of when you actually have money at risk. How would you like to have $50,000 into a deal and then find out your guesses on costs were wrong and it is going to cost you a whole lot more than planned? That’s a bad day.
Lessons Learned Provided
One of the main reasons for this blog is to share some hard earned knowledge. If you leave some costs out or make some bad assumptions, it can cost you. I am providing our initial financial model. Pretty good profit numbers numbers! Future posts will reveal how accurate we were in our assumptions. You should look at this initial model and decide what numbers you might use and what costs were left out or wrong assumptions made. You will learn more that way. A hint - It wasn’t perfect. We had to do some scrambling during the course of this development to make everything work!
Actual Financial Model
Here’s our initial model for our development:
We would purchase the land in June and start construction in August. Construction would take 14 months and it would take 6 months to sell the property.
Land Price: $500,000
Down Payment: $25,000
Loan Amount: $450,000
Closing Costs: $7,125
Interest Rate: 5% (interest only)
Total Land Upfront Costs = $32,125
Home Size: 3,200 SF
Construction Cost: $200/SF
Total Home Cost: $640,000
Down Payment: $0
Loan Amount: $640,000
Closing Costs: $9,600
Interest Rate: 5% (interest only)
Total House Upfront Costs = $9,600
Total Upfront Costs = $41,725
Sale Price of Home: $1,700,000
Less Real Estate Commission: <$85,000>
Less Land Loan Payoff: <$500,000>
Less Home Loan Payoff: <$640,000>
Less Total Cash and Interest: <$98,061.81>
Profit: $376,938.19
I have attached a spreadsheet for those of you who want to download the actual detailed sheet we used to develop this model. Just click on the link below. A lot has been learned since then and our models have become much more inclusive. The spreadsheet is provided for educational purposes only. I take no responsibility for its use by others. (Don’t you hate that our society has become so litigious that we have to rely on disclaimers.)
Initial Financial Model of First Project
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