I received a request this week to build a model to assess the financial feasibility of building a new single-family home. Given that I wanted to get a model up before the New Year and that I have a number of single-family home building models in my personal library, I figured this would be a simple and well-received project for the week before Christmas. So with that said, allow me to introduce my back-of-the-envelope, single-family home construction pro forma for home builders.
You might also like my residential land development pro forma.
When to Use this Model
This pro forma is a simple, back-of-the-envelope model. It is meant to be used at the earliest stages of analyzing a potential project to determine whether there is sufficient financial reason to continue spending time and money pursuing the project. So you might use this model when a lot buying opportunity comes up, when moving into a new market, or just to refresh your numbers before the start of a new build.
The entirety of the model is built in one Excel worksheet (tab), giving the user the option to duplicate the tab for use with multiple projects. What this means is it can easily be adapted to analyze a multi-build project . For instance, say you’re considering buying 10 lots in a subdivision with 10 different homes on each lot. You could take this model, duplicate the one tab ten times, and then add a ‘Project Summary’ tab that rolls up the various outputs from the ten tabs into a ‘Project Level’ pro forma.
Components of the Model
The Single-Family Home Construction Pro Forma includes seven sections plus a hidden calculation section. The seven sections are:
- Summary – a debrief of the results of your inputs. This includes a projected profit and loss, the total project length in days, the profit margin (net profit ÷ gross sales price), the total builder cash required (i.e. builder equity), and the total builder cash required less overhead.
- Timing – where the user inputs a simple project timeline. Here you will include the project start date, the construction start day, the construction end day, and the day the home closes.
- Project Description – information about the physical characteristics of the build. This includes the name of the neighborhood, the lot and block, the lot size in square feet, the address with city and state, the name of the home plan, the size of the home, and the specifics of bed, bath, and garage.
- Project Costs – a very simple project budget. In this section you’ll build out your project budget. The period (i.e. day) when each item starts and ends , and the duration of each is also calculated and shown here.
- Home Sale Pro Forma – a breakdown of the gross sales price and a summary of the associated costs required to build the home. There is just one input in this section – the expected home sales price.
- Sources and Uses – a list of the sources (e.g. debt, equity) and uses (e.g. land cost, hard costs, etc) for the project. Here is where you’ll determine the construction financing amount that you’ll need to complete the project.
- Data Validation – a data entry section, it is here where you’ll list the nomenclature of the home type or stories drop-down menu found in the Project Description section.
In addition to the seven sections listed above. You can reveal the calculation by period (i.e. day), using the box labeled ‘1’ in the upper-left hand corner of the worksheet. The calculations are made on a per period basis, with each period representing one day. The maximum number of periods is 730 or in other words, the maximum project length is two years.
Watch the Video on How to Use the Model
I recorded a short video showing you how to use the model. You can watch it below:
Download The Model
To make this model accessible to everyone, it is offered on a "Pay What You're Able" basis with no minimum (enter $0 if you'd like) or maximum (your support helps keep the content coming - typical real estate models sell for $100 - $300 each). Just enter a price together with an email address to send the download link to, and then click 'Continue'. If you have any questions about our "Pay What You're Able" program or why we offer our models on this basis, please reach out to either Mike or Spencer.
Note (especially for Gmail users): The model is sent via email and occasionally is blocked by spam filters. If you don't see the email arrive within five minutes, check your spam folder.
Single Family Home Construction Pro Forma
- A back-of-the-envelope model for assessing the financial feasibility of a prospective new build,
- Meant to be used by home builders on new build, for sale, single-family home projects,
- All calculations and inputs made on one tab, allowing the user to easily duplicate the tabs and analyze multiple projects at once,
- Project length up to two years,
- Cost categories include building lot, design/engineering, hard building costs, overhead, other costs, finance costs, marketing/commissions, and closing cost.
This Excel file (the "software") is distributed as is, completely without warranty or service support. www.AdventuresinCRE.com and its authors are not liable for the condition or performance of the software. www.AdventuresinCRE.com owns the copyright and grants users a perpetual, irrevocable, worldwide, non-exclusive, royalty-free license with respect to the software as set forth below.
www.AdventuresinCRE.com and its authors hereby disclaim all implied warranties. www.AdventuresinCRE.com grants the users the right to modify, copy, and redistribute the software and documentation, both within the user's organization and externally, subject to the following restrictions:
1. The users agree not to charge others for use of the software, regardless of whether users have altered and/or improved the software in anyway.
2. In any use of the software, the users agree to acknowledge the www.AdventuresinCRE.com authors that developed the software.
3. The users agree to obey all government restrictions governing redistribution or export of the software.
4. The users agree to reproduce any copyright notice which appears on the software and documentation on any copy or modification of such made available to others.
About the Author: Born and raised in the Northwest United States, Spencer Burton has over 15 years of real estate investment and development experience. In his current position, Spencer assesses new acquisition, development, and debt opportunities for a $45bn real estate fund. He resides in Dallas, TX.