Building an effective real estate development model is crucial for you as an individual as well as your company. It not only helps build credibility but also gives you the ability to navigate to make better financial decisions. Whether it’s an investment you need to make or a meeting you need to attend with a potential partner, an effective real estate development model gives you enough confidence to bag any deal with maximum profit.
Follow these steps to build your real estate development model from scratch –

Step 1: Choose Your Software

Since the first step towards developing a real estate model starts with calculations and formulas, you must choose a software program. While Estate Master and Argus are two common options for most real estate developers, some prefer to stick to Excel. Since both software programs offer better features such as accuracy, customer service, compatibility with several requirements, compliance, and global participation, it is wiser to use a relevant software program.

Step 2: Schedule and Property Stats Assumptions

Next, you must make assumptions based on the schedule, measurements, size, construction phase, time period, design value, and other stats related to the property. To assume the property’s schedule, you should consider its transaction date, start and end date of construction, units sold per month, start date of the sale, transaction time period, and units closed per month. To assume the property’s stats, consider its net site area, gross site area, number of units, density, average unit size, construction GBA, and deductions.
Real estate development and relevant assumptions and calculations can seem quite complicated, especially if you are a newbie in this discipline. Invest in real estate financial modeling training or a relevant crash course. These are usually backed by real-world experts. Choose a course that is straightforward and uncomplicated.

Step 3: Consider the Cost of Development

In this step, you assume the construction and development cost using certain crucial factors such as cost per unit, total amount, and cost per square foot. At the same time, do not underestimate the calculations and assume more than you did earlier. This includes certain unexpected situations such as soft and hard contingency, land costs, accidents, advertising, and marketing. Calculate a higher price to stay out of trouble during emergencies and meet your financial needs to keep the project going.

Step 4: Assume Costs Related to Financing

Next, you should consider and calculate financial costs, which include the cost of land, interest rate, and percentage ratio of loan-to-cost. To make it simpler, consider this simple formula –
Total Development Cost = Cost of Land + Cost of Development + Commissions and Interest
If you are taking a loan, consider relevant costs such as loan-to-cost percentage and add it to the total development cost accordingly. At the same time, consider the equity amount as well.

By following these steps, you are ready to forecast the outcomes of your investment or financial decisions with ease, which leads your company to success. Building expertise in such assumptions can save your company from potential losses as well. Drive your company to success with an effective real estate model.