Budgets, Cash Flow, and Feasibility

Create property development budgets, cash flows, and feasibilities that model income and expenditure, risk, and return sensitivities over the term of the development/investment deal and to establish property value.

A development will fall flat if there isn’t a concrete budget or proof that the project will be financially feasible. With as many moving parts as there are in the development process, a cash flow model is a necessity to ensure that every dollar is accounted for.

While many of our classes focused partially on finances, two classes in this program really taught me the importance of budgeting and financial feasibility in a development. In LDEV 668, we devoted much of the class to discounted cash flow models. We were given a series of assignments toward the end of the semester where we were given a template and a list of assumptions. Between each class period, we had to complete a section of the cash flow model based on those assumptions. This included:

·       Calculating sale proceeds and lot escalation based on the assumptions and lot takedown schedule

·       Calculating cash flows based on the total uses of cash

·       Calculating the initial rate of return

·       Balancing the debt schedule based on interest rate and equity required for the A&D loan

In FINC 670, we also used DCF models, but that was only one of the financial tools that we used. We also learned about sensitivity analysis and time value of money. Incorporating more complex tools into my financial analysis helped me understand DCF models better. Those models were also a major help to me because I utilized them heavily in my internship.

Click below to see my final DCF model from LDEV 668.