No-Stress Analysis for Distressed Properties
By Frank Gallinelli
Investors and developers are a creative lot. With the real estate industry laboring through hard times, we are hearing from customers who are turning their attention to inventive types of property analyses. Perhaps the most common type is the distressed or foreclosed development: the approved but-yet-to-be constructed subdivision or the partially built condo project. Such projects have some percentage of units built or partially built, but are often languishing in foreclosure without buyers for the units.
The investor is looking to purchase the entire project at a low price with the idea of renting existing units for several years and then beginning sales once the real estate market turns around.
Fortunately, our On Schedule software can easily handle such projects.
On Schedule, is, by design, a real estate development analysis tool. It can evaluate land subdivisions, housing subdivisions and residential or commercial condominium projects. The model presumes that you are buying land and constructing buildings, but it can also evaluate the purchase of existing buildings with equal ease.
Several years ago (read 1994) we added a line item to our analysis for rental revenue. At that time, condo conversions were popular, and our users wished to account for rental revenue during the conversion process. Such income is entered as a single dollar amount per month - suitable for short-term income, but perhaps not enough for an investor facing a project with hundreds of units and/or several years of rental activity. A simple expansion of On Schedule using an additional worksheet can provide added detail for rental income. Let's walk through the steps of creating this new module.
The ability for the user to add new features and make customizations is where Excel shines as a software development platform. All RealData products allow the user to add new user worksheets, and we will do that to contain the additional income calculations. Let's name this new worksheet "Rent Roll." To add the new sheet, just go up to the RealData Menu, select User Sheets, then choose Add as shown in the figure below.
With this new blank worksheet, we are now ready to set up our Rental Income calculations using a layout similar to other portions of On Schedule. Before we begin, please know that we're not going to go through a complete step-by-step construction of this sheet. We'll be looking at an overview to convey how you can build this kind of detailed sub-schedule for a particular line item like rental income. But don't be disappointed because, as described below, we'll be glad to give you this enhancement for your copy of On Schedule.
As shown in the figure below, we divide the income into 8 sections, each representing one of the 8 unit types. Each section uses a formula in the first row to bring over the number of units for that type that are "available for delivery" as calculated on the Development and Absorption worksheet. For example, in the first month of the first unit type, the formula is:
='Development & Absorption'!D131
You can insert such a formula on your worksheet, then you'll probably want to use the drag-fill feature to copy the formulas across all 120 columns of this row.
We'll presume that if a unit is available for delivery, then it is complete and rentable. Then we add a row for data input to show the rental income per unit for each month. A third row makes the simple multiplication to get the total rent for all units of that type.
Next, we sum up the income from all 8 unit types.
We finish up this project back on the Development and Absorption worksheet where we add formulas on row 116 to grab the Total Income from our new worksheet.
The formula for the first month on row D116 is:
which corresponds to the first month of our Total Income row on our Rent Roll worksheet.
With little effort, we have effectively expanded the On Schedule program to accommodate additional rental income detail. Best of all, the On Schedule program itself remains essentially unchanged so no calculations are compromised. This new worksheet simply builds upon the reliable product as we deliver it.
Many of our customers choose to extend our products in ways such as this to work with their particular projects. While we cannot offer to build out elaborate customizations for you, we are glad to assist you in making such expansions. The particular customization discussed in this article is available to you at no charge if you own a license of the On Schedule program. Just email or call and we are glad to send it out to you.
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