This financial model can be used to evaluate a real estate investment opportunities such as a land development project. It’s a robust model (with only three tabs), yet, very user-friendly, and will provide the user with a very detailed Excel spreadsheet.
The model assumes one phase of horizontal development where the land is purchased, at the entitlement month, and then construction begins. Prior to the purchase, the model assumes that there is a period spent in due diligence with some expenses incurred (evenly split during the diligence period), and at the end of the Due Dilegence period a land deposit is made.
The sales of the lots unfold in two phases: the pre-sales where the lots are sold at a discount over the average lot sale price and the regular sales period where the discount is no longer applicable. The template assumes a deposit payment in the month of sell and after the closing period, the remaining proceeds are received.
The construction assumptions (hard and soft costs) are also evenly distributed during the construction period.
Finally, the user needs to enter assumptions related to financing, rate, term, and loan-to-cost. With all assumptions in place, the template runs an analysis up to 120 months of unlevered and levered monthly cash flows.