Development CF model-if I already own the land
Hi,
Suppose I have been owning the plot of land I will develop a resi complex on for years, do I still need to insert it in the CF model ? If so, in what year (has been owned for >years)?
I was thinking of assuming the acquisition of the plot of land for last year and see the development returns. Not including the cost of land would be a mistake I think, considering that if I do the development I am “throwing” that plot of land away (sort of an opportunity cost)?
Thanks !
You should include the cost of land as it was an expense you incurred to create the project. Not including it in your model doesn’t change the reality you still have to pay for it (or at sacrificing the opportunity value to sell it off).
There’s even an argument to be made that you want to be compensated a certain % for each year you held the land. This comes more into play if you’re bringing outside investors into the deal, but I think it’s less relevant if you’re the only one in the deal because you’re only increasing the cost basis for the project and thus skewing unfavorably towards weaker ROC thresholds.
Thank you! So should I put it as a cost in Year 0? (As an assumption)
Yes, you’ll typically include it in your development costs.
I would model the land costs based on market value today. This would then account for opportunity cost of selling today. If it’s for your own personal deal, who cares as long as it makes sense to you
Thanks. So I would put it as a CF at year 0 correct?
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