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Land Development ComponentsLand development components are interrelated, and changing any one of them impacts project profitability to some extent. The model allows you to modify ('what-if') the components, singly or in combination, and measure the effect on profit. The land development components considered within this model are: Note that although land cost and land value are related, they are not one in the same. It is the combination and interplay of all the
other land development components that sets the amount an investor is willing
to pay for undeveloped land. It follows then that land cost tends toward land value when all other components, including
investor return expectations, are market driven. The total number of lots, sale
price per lot, sale costs, closing costs, developer fees, vacant land costs,
development cost per lot, permitting costs and extraordinary costs are "above gross profit" components,
while length of the construction period, absorption, seller financing (if any),
builder deposits (if any), number of phases, land options (if any), interest
rate, interest rate trend and lender loan requirements are "below gross profit" components. It is the combination
and quantities of, and the presence or non-presence of these “below gross
profit” components that determine a project’s interest cost. It is important to note that the gross profit of any given project will be the same no matter what the combination and quantities of “below gross profit” components and regardless of the presence or non-presence of “below gross profit” components. The point here - making decisions about a land subdivision based on gross profit projections alone (e.g. absent a reliable estimate of total project interest cost) is not a good idea.
A major strength of the land development model lies in its ability to
calculate profitability below the gross profit level. This is to say, the LDM calculates total project interest cost.
Interest costs vary substantially with and without the presence of
options, residual land, seller financing, and builder deposits.
Interest cost also varies depending on interest rates, the
direction of interest rates, length of the construction period, and
most importantly, absorption. If you
wish to ask us a question about the model, 'Contact
Us' and we will get back to you
as soon as possible.
Model
Input Page
What-If Analysis LDM Input Page Knowledge Level Home Page Land Development Model, LLC 302 West Lafayette Road Medina, OH 44256 330.441.1690 |