Companion to: Real Estate Decoded Chapter 25 (Production Residential) - Workbook tab (developer model series)
Inputs
Outputs
Total project gross revenue
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Total project cost
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Total project profit
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Months to fully sell out
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Project IRR (estimate)
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Equity multiple (estimate)
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How to read this tool: Lot absorption pace is the single most-sensitive variable in land development IRR. A 6-month delay in first takedown can move IRR by 5+ percentage points. The institutional land-developer underwrites against the builder's monthly-starts target (e.g., DR Horton operates an even-flow production model at 6-10 starts/community/month).
What this tool is for
Land development is the highest-IRR, highest-risk real-estate category. The land developer entitles, infrastructures, and finishes lots; the production builder takes them down on a contracted schedule. The relationship between developer and builder is the heart of US homebuilding economics. This tool models the takedown pace that drives the whole thing.
Benchmarks the practitioner watches
- Production builder takedown pace: 6-10 lots/month per community at scale
- Builder gross margin on take-down lots: 18-25%
- Land developer target IRR: 18-25% (entitlement + absorption risk)
- LTC on construction loan: 60-70% (developer equity 30-40%)
- Carry period before first takedown: 4-12 months
Common mistakes
- Modeling builder takedown pace at the marketing-stated rate instead of the historical actual rate
- Underwriting the project IRR without time-weighting the takedown cash flows
- Missing the entitlement-extension risk (the assumed schedule slips, the IRR collapses)
- Skipping the option-contract structure that protects the developer from builder default
Educational reference only. Not investment, tax, legal, or real-estate advice. Confirm market-specific cap rates, lender terms, and tax overlay with your own advisors before acting.