Excel Models
Residential Real Estate Project Excel Model
Despite the common perception that the development sector is highly profitable, this is not the case. In reality, margins range around 10%-12%, and the high ROI is driven by the fact that most projects are characterized by extremely high leverage (and by leverage, I don’t just mean bank loans).
From a purely financial perspective, it can be said that the advance received from pre-sales is an operational obligation rather than a financial one, but this is not accurate. This is because installment plans are inherently interest-bearing (even though the interest is usually hidden in the price).
The high level of competition in the sector requires thorough pre-analysis of the project before starting and stringent management of financial risks during the implementation process. By financial risks, I mean the uncertainty of profitability, as well as the management of inflation, liquidity, and credit risks.
Investment analysis begins with the process of purchasing land. Even though there may not be a detailed architectural plan or cost estimate at this stage, preliminary analysis is still essential. The investment decision is the first stage that impacts the profitability of the project; if a mistake is made at the investment stage, it will be extremely difficult to bring the project to profit during implementation – changing the direction of a fired bullet is impossible.
Let’s look at an example of a specific project with the following assumptions:
- Land area: 2500 sq.m.
- Land price: 25%
- K2 (coefficient): 3.5
- Residential share: 80%
- Internal usability: 72%
- Project duration: 24 months
- Price segment: $1000/sq.m.
We present analytical information in the form of charts and diagrams, which we typically prepare before starting a project. The numbers presented here are quite close to the real standard conditions.
Overview of the planned main version:
Monte Carlo simulation result from 1000 iterations:
Sensitivity analysis, i.e., the impact of factors on profitability:
Break-even price analysis:
Distribution of the planned price per sq.m. by components:
Intersection of the project’s Modified IRR and NPV:
Range of return on capital from 1000 iterations:
Maximum accumulated debt according to the planned scenario:
