Background

A Land Development company based in Edmonton, Canada. Therefore they are specialized in acquiring real estate such as growing land, build infrastructure for individuals, mixed family, corporate, and tenants.

Challenge

The company was going to start a new project and was planning to acquire another land. But before that, they want proper research and analysis of the cost that is attached to the project and the profitability of the project. They wanted to have depth financial models, through which they can evaluate the project accordingly.

Solution

Hence Oak Business Consultant helped him to build a dynamic and depth financial model so that they can play with the numbers in the forecast model.
Real Estate business models have multiple factors to analyze, as the cost structure is very complex and links with many other industries, sectors like Steel, Cement, Engineering, and Plastics.
The development cost of Real Estate would vary if any of the raw material cost increases. On the other hand, the land has to capitalize on a maximum level, and they will have more houses, apartments, etc.
So, real estate has a financial model which is far different and complicated as compared to SaaS or restaurant economic model as there is a lot of input variable to do a depth analysis.
We created the model in the following way.

Project Structure

Firstly, the step to creating a project structure, how much percentage of the land area will be used for houses, apartments, and rental offices. We built a chart as an input assumption.

Hard Cost

Also, we evaluated the hard cost. Hard cost consists of tangible assets. This means that a thorough analysis of the cost that would be incurred in the project. Hence this sheet not only provided the projection input but also provided an option for variance analysis when the project is completed.
Following are the hard costs that we analyzed.

• Water Treatment Plant
• Fire/ Irrigation / recirculation pumping
• Site Works
• Storm Water Management / Sewer
• Community Facilities & Amenities
• Domestic Water Supply
• Shallow Utilities
• Internal Roadway System
• Trail & Pathway Network
• landscaping Features
• Offsite Costs
• Concrete Work
• Surface Work
• Highway Intersection
• Contingency Allowance
• Sanitary Sewer
• Water Mains
• Fire Protection Mains
• Lot Services
• Waste Water Treatment Plant

 

Therefore, intensive capital projects like real estate have to control the cost so that the overall cost per unit would decrease. Similarly, the client needs to calculate the per-unit cost to build one house, apartment, or commercial building in order to determine the cost and the price.
Oak business consultant also provided the per-unit cost analysis.

Soft Cost

Soft costs are the intangible cost, which includes architectural, engineering, financing, and legal fees, and other pre-and post-construction expenses. We created a detailed input chart in order to estimate the soft cost.

• Architectural Design & Building Plans
• Professional Services
• Engineered Plans
• Fees Payable To County

Development Cost

Furthermore, after analyzing the hard and soft costs, we summarise both to determine the whole project cost.

Revenue Model

There are many phases of the land like houses for single-family, mixed family, duplex, apartments, and every phase will have different costing and value according to demand.
We built a dynamic financial model, having input for every phase. So that we can forecast accurate revenue.

Profit and Loss Forecasting

Thus, after developing the cost structure and the revenue model, we compiled the data and built a profit and loss statement. Furthermore, we also created a sheet for data, so that it would easier for the client to conduct variance analysis.

Project Evaluation

Firstly, project evaluation is conducted with the help of a financial model which helps in checking the feasibility of any given project. After analyzing the in-depth analysis of cost structure and expected value, we need to examine the project profitability.
Moreover, Oak Business Consultant provided Evaluation tools, i.e.Net present value (NPV), Internal rate of return (IRR), Payback period, and Return on investment (ROI).

Dashboard

Last but not least, we provided them with a dashboard, which summarises the whole projection accordingly.