Fin180 Blog Post 2 Investment project

Jacob Balfanz
1.     The listing price for a 20.81 acre piece of land is $975,000 and the development improvements are $2,279,256.
2.     The land is divided into 78 lots.
3.     The builder estimates the development to be completed equally over three years (26 houses per year).
4.     Operating Expenses are $144,011.76 per home and are expected to rise 2% every year.
5.     Credit loss is 5%.
6.     The homes sell for $230,833.33.
7.     Housing prices are estimated to appreciate at 3% a year.
8.     The lender is quoting a loan to value ratio of 70% for a 30 year loan with monthly payments and a 7% interest rate
9.     An amortization schedule indicates that the principal repayment for the loan will be $23,139.94, $24,812.72, and $26,606.44. The annual debt service is $15,155.45*12.
10. Brokerage Commissions are 3%.
11. Income tax rate is 51.6%. Capital gains tax is 20%
12. Investor requires a 15% rate of return
BTCF
	Year 1	Year 2	Year 3
Potential Growth	$6,001,666.58	$6,181,716.58	$6,367,168.07
Less Credit loss	$300,083.33	$309,085.83	$318,358.40
EGI	$5,701,583.25	$5,872,630.75	$6,048,809.67
Less OE	$3,744,305.76	$3,819,191.88	$3,895,575.71
NOI	$1,957,277.49	$2,053,438.87	$2,153,233.96
Less ADS	$181,865.40	$181,865.40	$181,865.40
BTCF	$1,775,412.09	$1,871,573.47	$1,971,368.56
Taxable Income
	Year1	Year2	Year3
NOI	$1,957,277.49	$2,053,438.87	$2,153,233.96
Less interest	$158,725.46	$157,052.68	$155,258.96
Taxable income	$1,798,552.03	$1,896,386.19	$1,997,975.00
ATCF
	Year1	Year2	Year3
BTCF	$1,775,412.09	$1,871,573.47	$1,971,368.56
Tax impact	$928,052.85	$978,535.28	$1,030,955.10
ATCF	$847,359.24	$893,038.20	$940,413.46
BTER
Future Sale Price	$18,550,551.23
Less Selling Costs	$556,516.54
NPS	$17,994,034.70
Less Loan Balance	$440,930.82
BTER	$17,553,103.88
Capital Gains Tax
NPS	$17,994,034.70
Less Orig Basis	$3,254,256.00
Total Capital Gain	$14,739,778.70
DCF
	Year1	Year2	Year3
ATCF	$847,359.24	$893,038.20	$940,413.46
BTER			$17,553,103.88
Less Capital Gains Tax			$2,947,955.74
Annual Benefits	$847,359.24	$893,038.20	$15,545,561.60
PV factor	0.869565217	0.756143667	0.657516232
PV annual benefits	$736,834.12	$675,265.18	$10,221,459.09
Total Benefits	$11,633,558.39
Decision
PV: Total benefits	$11,633,558.39
Less initial equity	$976,276.80
NPV	$10,657,281.59
Normally a development and construction loan occurs rather than an amoratized loan so now we will see the difference.
The loan is based on the appraised amount of each lot. An appriasal is done to find each lot is valued at about $50,000.
Interest Expense is estimated at about $10,000  per lot
BTCF	Year 1	Year 2	Year 3
PGI	$6,001,666.58	$6,181,716.58	$6,367,168.07
Less OE	$3,744,305.76	$3,819,191.88	$3,895,575.71
NOI/BTCF	$2,257,360.82	$2,362,524.70	$2,471,592.36
Taxable Income
	Year1	Year2	Year3
NOI	$2,257,360.82	$2,362,524.70	$2,471,592.36
Less interest	$260,000.00	$260,000.00	$260,000.00
Taxable income	$1,997,360.82	$2,102,524.70	$2,211,592.36
ATCF
	Year1	Year2	Year3
BTCF	$2,257,360.82	$2,362,524.70	$2,471,592.36
Tax impact	$1,030,638.18	$1,084,902.75	$1,141,181.66
ATCF	$1,226,722.64	$1,277,621.96	$1,330,410.70
BTER
Future Sale Price	$18,550,551.23
Less Selling Costs	$556,516.54
NPS/BTER	$17,994,034.70
Capital Gains Tax
NPS	$17,994,034.70
Less Orig Basis	$3,254,256.00
Total Capital Gain	$14,739,778.70
DCF
	Year1	Year2	Year3
ATCF	$1,226,722.64	$1,277,621.96	$1,330,410.70
BTER			$17,994,034.70
Less Capital Gains Tax			$2,947,955.74
Annual Benefits	$1,226,722.64	$1,277,621.96	$16,376,489.66
PV factor	0.869565217	0.756143667	0.657516232
PV annual benefits	$1,066,715.34	$966,065.75	$10,767,807.78
Total Benefits	$12,800,588.87
Decision
PV: Total benefits	$12,800,588.87
Less initial equity	$976,276.80
NPV	$11,824,312.07
This investment would be very profitable because it has a very high net present value