Greg L Barron
CEO of The Barron Companies
Step By Step Guide To CRE Investing
Fundamental Truth:
1. Fundamental Truth
Venturing into a real estate or development deal without a solid understanding of your personal return requirements is akin to navigating uncharted waters without a compass. It’s a recipe for disaster. Therefore, it’s paramount to equip yourself with the right tools and knowledge to navigate the complex landscape of real estate investment.
In our previous discussion, I shared insights into one of my personal landlocked development deals, shedding light on the critical factors that shape the deal process. From locating the deal and assessing its necessity to submitting Letters of Intent and conducting feasibility studies, we covered the essential groundwork required to lay a solid foundation for any real estate venture. And let’s not forget the importance of smart master planning and determining preliminary costs, tasks that often necessitate collaboration with seasoned professionals such as civil engineers.
2. Exploring Financing and Carrying Costs
With the groundwork laid, it’s time to delve into the realms of financing and preliminary carrying costs. Securing financing for your project is a pivotal step that requires careful consideration. Whether you’re reaching out to banks for term sheets or evaluating construction loan options, understanding your financing needs is key to ensuring the success of your venture. Additionally, you need the concept of preliminary carrying costs, exploring factors such as absorption rates and the impact of lot sales on your financial projections.
3. Unlocking the Power of Financial Modeling
Now, let’s talk about the heart of real estate evaluation: financial modeling. While the term may sound daunting, fear not! With the right tools and guidance, financial modeling becomes a powerful ally in your quest for success. Whether you’re using a robust Excel spreadsheet or specialized software such as ProformaPlus – the software we developed in house, the goal remains the same: to evaluate the financial viability of your project with precision and foresight. From sources and uses of cash to fixed costs and equity requirements, we’ll walk through the process step by step, ensuring that every data point is meticulously analyzed to inform your investment decisions.
4. Forecasting Lot Sales and Absorption Rates:
But what about the sales side of the equation? Fear not, we’ve got you covered. We’ll dive into the intricacies of forecasting lot sales and absorption rates, shedding light on predictive modeling techniques to help you navigate the dynamic real estate market with confidence. By understanding factors such as demographic trends, market demand, and pricing strategies, you’ll be equipped to make informed decisions that drive the success of your project.
5. Conclusion
As we conclude our journey into the realm of real estate financial modeling and evaluation, I hope you feel empowered with the knowledge and tools to embark on your own ventures with confidence. Remember, success in real estate development requires a blend of expertise, diligence, and strategic foresight. By mastering the art of financial modeling and evaluation, you’ll be well-positioned to navigate the complexities of the industry and unlock new opportunities for growth and prosperity. So, here’s to your success in the exciting world of real estate development!
Until next time, happy investing!
