You are contemplating development of single-family houses on an acre of land you already own.

The land can be subdivided into 1, , or acre lots. 1-acre lot houses are typically 4,000 SF and

cost $350,000 to construct.

Houses on acre lots are 3,000 SF and cost $ 225,000 to build and acre houses are 2,000 SF

and cost $175,000.

Subdivision costs (legal, infrastructure etc.) are $40,000 per lot.

A 4,000 SF house will sell for $500,000, a 3,000 SF house will sell for $350,000 and a 2,000 SF

house will sell for $250,000.

What should you do?

B)

Suppose a 15,000 SF building you are considering purchasing is generating gross rents of $300,000 per

year with no expense reimbursement.

Operating expenses are $100,000 per year and vacancy loss is 5% of gross rent.

You feel you need to carry capital reserves and leasing commissions @2% of gross rent.

You can buy the building for $2,000,000 and finance 70% of the purchase price @ 8% interest

and 30-year amortization (0.0881 loan constant).

Replacement costs for similar buildings are $125 per square foot and vacancy rates are 7%.

Determine your NOI, CFO, FC, ROA and ROE.

What should you do? Why?

What else should you worry about?

Overview of Real Estate Development Assignment 1a You are contemplating development of single-family houses on an acre of land you already own. The land can be subdivided into 1, , or acre lots. 1-acre lot houses are typically 4,000 SF and cost $350,000 to construct. Houses on acre lots are 3,000 SF and cost $ 225,000 to build and acre houses are 2,000 SF and cost $175,000. Subdivision costs (legal, infrastructure etc.) are $40,000 per lot. A 4,000 SF house will sell for $500,000, a 3,000 SF house will sell for $350,000 and a 2,000 SF house will sell for $250,000. What should you do?

Suppose a 15,000 SF building you are considering purchasing is generating gross rents of $300,000 per year with no expense reimbursement. Operating expenses are $100,000 per year and vacancy loss is 5% of gross rent. You feel you need to carry capital reserves and leasing commissions @2% of gross rent. You can buy the building for $2,000,000 and finance 70% of the purchase price @ 8% interest and 30-year amortization (0.0881 loan constant). Replacement costs for similar buildings are $125 per square foot and vacancy rates are 7%. Determine your NOI, CFO, FC, ROA and ROE. What should you do? Why? What else should you worry about?