# E-learning Topic ~ Development Unit Sales (Land Development, Subdivision)

## This walk through is useful for Unit Sales, Land Development, Subdivision, or Condo Development projects. The step by step method does not assume that you have any experience with planEASe, although any prior experience will make the walk through more pleasant. The case study is homesites, and the main topics will be entering the development costs, sales of the homesites, and construction draw loan. Many 'what if' scenarios are covered in the sensitivity and risk movies.

Training Topic Notes - This training topic shows you how you would enter a homesite subdivision development into planEASe. Although this particular example is homesites, this same example could be Condo Develeopment or any development analysis based on sale of units paying down the construction draw.

+/-1. Starting Point - Entering General Information (File - New Assumptions) Video 1:11 Minutes

Click on File/New Assumptions on menu bar.

Type in the specifications below, pressing enter after each completed entry, and click OK.

- Investment Name - 'Homesites'
- Square Feet or Units - '120'
- Fiscal Year Starts on - 'Jan 1'
- Comments - Leave Blank.

+/-2. Entering the Investment Page (Start Date and Holding Period) Video 1:45 Minutes

- Price of Property - '0'
- Closing Costs - '0'
- Date of Acquisition - '1.10'
- Holding Period - '5'
- Inflation Rate - '4'
- Sale Price Method - Select "No Sale Price Computed" from the list
- Sale Price Parameter - '0'
- Selling Costs - '0'

**Verifying Your Entries** - Click on Basic button to bottom right, and wait a second. When the Basic Analysis screen appears, choose the Vertical view (at the bottom right of the screen). When done, click on Exit.

+/-3. Entering the Investor’s Page (Tax and Present Value Discount Rates) Video 0:36 Minutes

- Tax Rate First Year - '35'
- Tax Rate Following Years - '35'
- Capital Gain Rate - '0'
- Cost Recovery Recapture Rate - '0'

+/-4. Adding Costs (Multiple Development Cost items) Video 6:05 Minutes

**Unit Sales Dialog**

Click Edit / Unit Sales on the menu bar.

- While planEASe is still based on the notebook page concept, the Unit Sales Dialog Box is an interface for entering the development and sale process. All of the development and sale process is entered in this dialog box, which has some extra reporting functions. The numbers still end up in the pages, but the pages are created by the dialog box.

Click on the cell below Unit Sales Cost Item, and enter the following information.

Unit Sales Cost Item | Quanity | Cost/Item | Start | Mos | Draw |

Land | 1 | 1,050,000 | 2.10 | 1 | 40 |

Soft Costs | 120 | 35,000 | 2.10 | 2 | 100 |

Hard Costs | 120 | 78,000 | 2.10 | 8 | 100 |

- This is the grid where all the development costs get entered. Here, we are simply entering general numbers at the beginning of the process. The Draw amount indicates how much of each item will be paid for by the draw loan. Mos is the number of months over which to spread the cost of this item. If more than one, the cost of the item will be spread equally across the number of months requested. Mos values which would cause spending after the end of the Holding Period are not allowed.

To modify the general cost items, delete the Hard Costs and soft Costs items with Edit / Delete Item. Then click on the cell below Unit Sales Cost Item "Land", and enter the following information.

Unit Sales Cost Item | Cost/Item | Start | Mos | Draw |

Land | 1,050,000 | 2.10 | 1 | 40 |

Site Development | ||||

Clearing & Grading | 59,429 | 3.10 | 1 | 100 |

Paving | 114,549 | 3.10 | 1 | 100 |

Curb & Gutter | 64,232 | 3.10 | 1 | 100 |

Sanitary Sewer | 158,810 | 4.10 | 1 | 100 |

Water | 61,277 | 4.10 | 1 | 100 |

Storm Sewer | 63,602 | 5.10 | 1 | 100 |

Entrance | 36,000 | 6.10 | 1 | 100 |

Power & Street Lighting | 9,300 | 6.10 | 1 | 100 |

Amenity | 270,000 | 7.10 | 1 | 100 |

Contingency | 35,000 | 7.10 | 1 | 100 |

Engineering | ||||

Design | 37,500 | 2.10 | 1 | 100 |

Layout | 25,000 | 2.10 | 1 | 100 |

Other Costs | ||||

Taxes & Insurance | 12,000 | 2.10 | 8 | 100 |

Legal & Closing | 13,000 | 2.10 | 1 | 100 |

Appraisal | 5,000 | 2.10 | 1 | 100 |

Marketing & Advertising | 61,250 | 2.10 | 8 | 100 |

County Fees | 2,000 | 2.10 | 1 | 100 |

Development Costs | 60,000 | 2.10 | 1 | 100 |

- This is the grid where all the development costs get entered. Here, we are simply entering general numbers at the beginning of the process. However, you can enter thousands of details here if you wish. The Draw amount indicates how much of each item will be paid for by the draw loan. If you want to add even more customized detail, the Meas field can be customized as well. You can see as you typed in Acres into the Meas cell that it became one of the drop down items you could select in the future.

**Verifying Your Entries** - Click Report Project Cost Summary

+/-5. Adding Sales (Multiple Sale Items) Video 2:50 Minutes

**Unit Sales Dialog**

Click Edit / Unit Sales on the menu bar.

Click on the cell below Unit Name, type 'Executive Lots - Interior', and enter the following information.

- When you enter 'Executive Lots - Interior' under Unit Name and press enter, the grid to the right lights up. The detail of the 'Executive Lots - Interior' sales are then entered in the grid to the right. If you mistakenly add an extra item, or wish to remove an item, click Edit/Delete Schedule Item on menu bar. There is a detailed explanation of Standard Cost on the last page of this tutorial. Press the F1 key on your keyboard for more help.

Date | Units | Unit Price | Std Cost | Comm |

7.10 | 11 | $20,000 | $1 | 6% |

1.11 | 11 | $21,000 | $1 | 6% |

4.11 | 11 | $21,000 | $1 | 6% |

7.11 | 12 | $21,000 | $1 | 6% |

10.11 | 11 | $21,000 | $1 | 6% |

1.12 | 15 | $22,000 | $1 | 6% |

4.12 | 6 | $22,000 | $1 | 6% |

Click on the cell below 'Executive Lots - Interior', type 'Executive Lots - Golf/Lake', and enter the following information.

Date | Units | Unit Price | Std Cost | Comm |

7.10 | 3 | $32,000 | $1 | 6% |

1.11 | 3 | $33,000 | $1 | 6% |

4.11 | 3 | $33,000 | $1 | 6% |

7.11 | 3 | $34,000 | $1 | 6% |

10.11 | 5 | $35,000 | $1 | 6% |

- When you enter 'Executive Lots - Golf/Lake' under Unit Name and press enter, the grid to the right changes to show the 'Executive Lots - Golf/Lake' schedule. The 'Executive Lots - Interior' schedule did not disappear - just click 'Executive Lots - Interior' to get it back. These two grids work together to identify unit/lot types, with detailed date and sale information - each with different schedules as needed. Press the F1 key on your keyboard for more help.

Click on the cell below 'Executive Lots - Golf/Lake', type 'Prestige Lots - Interior', and enter the following information.

Date | Units | Unit Price | Std Cost | Comm |

7.10 | 1 | $36,000 | $1 | 6% |

10.10 | 12 | $36,000 | $1 | 6% |

1.11 | 1 | $37,000 | $1 | 6% |

4.11 | 1 | $37,000 | $1 | 6% |

7.11 | 11 | $38,000 | $1 | 6% |

- When you enter 'Prestige Lots - Interior' under Unit Name and press enter, the grid to the right changes to show the 'Prestige Lots - Interior' schedule. The 'Executive Lots - Golf/Lake' schedule did not disappear - just click 'Executive Lots - Golf/Lake' to get it back. These two grids work together to identify unit/lot types, with detailed date and sale information - each with different schedules as needed. Press the F1 key on your keyboard for more help.

**Verifying Your Entries** - Click Report Unit Sales Summary

+/-6. Adding Construction Draw (The Construction Draw is like a revolving line of credit) Video 2:44 Minutes

**Unit Sales Dialog**

Check the box below Construction Draw, enter '8' for the interest, '80' in the discharge rate, and 'Accrued' from where interest is. Leave all other defaults as is.

- If the Draw Discharge Rate is greater than 100, every time a Unit Sale occurs, planEASe adds together the total Standard Cost of the unit(s) sold (you enter this number), multiplies that amount by this percentage, and pays the resulting amount to reduce the Unit Sales Draw loan balance outstanding. If the Draw Discharge Rate is less than or equal to 100, every time a Unit Sale occurs, planEASe adds together the total Unit Price(s) less commissions multiplies that amount by this percentage, and pays the resulting amount to reduce the Unit Sales Draw loan balance outstanding. There is a detailed explanation of Standard Cost on the last page of this tutorial. Press the F1 key on your keyboard for more help.

**Verifying Your Entries** - Click on Basic button to bottom right, and wait a second. When the Basic Analysis screen appears, choose the Vertical view (at the bottom right of the screen). When done, click on Exit.

+/-7. Unit Sales Parameter Page (Increase or decrease all the sales or costs at the same time.) Video 4:20 Minutes

**Assuption Edit Screen**

Click the Rev-usp Unit Sales Page on the Assumption Page List.

- The Unit Sales Parameter Page is a Page SubType generated by entering a Unit Sales Dialog, one Unit Sales Parameter Page is generated in each Assumption Set containing Unit Sales. The purpose of the page is to provide you with global variables you may use to investigate the effect of changes in your Unit Sales projection. You can edit any of the assumption values shown, and the resulting analysis will correspond to the edited values. Additionally, appropriate assumption values of the Unit Sales Parameter Page may also be varied in Sensitivity and Risk analyses. You may discern a Unit Sales Parameter Page in the Assumption Page List by its Page Abbreviation: Rev-usp.
- Price Multiplier (normally 100%), this is a factor you may apply to all of the Unit Prices in all Unit Sales Revenue Pages (and NO OTHER Revenue Pages) to increase (or decrease) all of them to a fixed percentage of their specified values. Very useful in Sensitivity and Risk Analyses.
- Cost Multiplier (normally 100%), this is a factor you may apply to all of the Costs in all Unit Sales Spending Pages (and NO OTHER Expense Pages) to increase (or decrease) all of them to a fixed percentage of their specified values. Very useful in Sensitivity and Risk Analyses.

+/-8. After Tax (Standard Costs) Video 4:38 Minutes

**Assuption Edit Screen**

Click the Basic button to the bottom right, select vertical to the bottom right, and click the "Page 2" button – Taxable Income Projection.

- For tax purposes, the interest payments on the loans are expensed as they occur. planEASe will always expense all the Unit Sales Costs by the end of the holding period. The schedule depends on the numbers entered into Std Cost. Std Cost allows planEASe to allocate the Costs specified as Unit Sales Costs to the appropriate time period for Income Tax purposes. Unit Sales Costs affect cash flows at the time incurred. However, for tax purposes, they are allocated to the Units Sold, and deducted at the time of the Unit Sale. To accomplish this, the Unit Standard Cost times the number of Units Sold for each Unit Sales Revenue Page is added together to obtain the Total Standard Cost for the Project. Then each Unit Sales Cost in the Cost Grid is allocated to each Unit Sale based on the ratio of the Unit Sale Standard Cost to the Total Project Standard Cost.
- When you build and offer units for sale, the IRS taxes you as a "dealer" in those units. This means that all your costs for the units to be sold are accumulated in Inventory, and may only be deducted for tax purposes when the unit(s) are sold, and the inventory can be credited for the matching "Cost of Goods Sold". planEASe handles the allocation of the costs in Inventory to Cost of Goods Sold through the use of the Standard Cost you enter for the units sold.
- In this sample, the Unit Sales Cost Items add up to $2,137,949, and these costs need to be expensed. The Standard Cost entered was $1 for each unit, and there are 120 units. planEASe adds up all the Standard Costs 120, then for each unit sold takes the Standard Cost for that unit, and divides it by the total (1 / 120). This fraction is 1/120, so for each unit sale planEASe expenses 1/120 of the Unit Sales Cost Items - $2,137,949 which equals $17,816. This sample sells 15 units in July 2010, so planEASe will expense 15/120 of the Unit Sales Cost Items - $2,137,949 each time which equals the $267,244 shown on Basic Analysis - Page
- No matter what standard costs you enter, planEASe will always expense all of the Unit Sales Cost Items, no more - no less. If you are using the Standard Cost for the Draw Loan Discharge Method, those numbers will be more than sufficient to create the correct schedule for expensing the Unit Sales Cost Items. If you have lots of different types of Units, and your holding period is long enough that you want to concentrate on expensing as much of your costs early in the project as you can, then schedule the units that cost the most, to sell first.

+/-9. Adjustment Time - Sensitivity Analysis (Vary assumptions for 'What If's') Video 6:40 Minutes

Assumption Edit Screen

Click on the Sensitivity button to the button right.

- As you perform an analysis, planEASe measures the worth of the investment in terms of rates of return and net present values. Sensitivity Analysis allows you to investigate how these measures vary with a change in one of the assumptions. Any measure may be chosen for the Sensitivity Analysis, and any assumption may be chosen as well. Sensitivity Analysis provides a one page table and graph which describes the relationship between the assumption value and the resulting measure.

Click on Rev-usp Units Sales to top right, click on Price Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type in the specifications below, and click the Run button. Select Column Stacked in Graph Listbox and check 3D to have your graph match the one pictured.

Starting at “90"Stopping at “110"

In Steps of “2”

- The Price Multiplier effects all the Unit Sales Prices. If the Price Multiplier is 100% then the Unit Sale Price is assumed to be 100% of what you entered ($200,000 = $200,000). If the Price Multiplier is 90% then the Unit Sale Price is decreased ($200,000 = $180,000). If the Price Multiplier is 110% then the Unit Sale Price is increased ($200,000 = $220,000). If the discharge rate is linked to the sale price (it is not here) the loan repayments are affected as well. This graph shows that if the Unit Sale Prices dip to 92% of the prices you entered, you lose money.

Click Another button top right, click on Rev-usp Units Sales to top right, click on Cost Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type in the specifications below, and click the Run button.

Starting at “100”Stopping at “110"

In Steps of “2”

- The Cost Multiplier affects all the Unit Sales Cost Items. If the Cost Multiplier is 100% then the Unit Sale Cost Item is assumed to be 100% of what you entered ($35,000 = $35,000). If the Cost Multiplier is 110% then the Unit Sale Cost Item is increased ($35,000 = $38,500). The Draw Amounts will modify at the same time, as you have set them to be linked. All the interest payments are changing as well. Assuming the Sale prices stay constant, if the costs increase to 108% you lose money.

+/-10. Adjustment Time - Risk Analysis (Monte Carlo Risk Analysis) Video 5:38 Minutes

Assumption Edit Screen

Click on the Risk button to the button right.

- As you perform an analysis, planEASe measures the worth of the investment in terms of rates of return and net present values. Risk Analysis allows you to investigate how these measures vary with a change in one or more of the assumptions. Any measure may be chosen for the Risk Analysis, and any group of assumptions may be chosen as well. Risk Analysis provides a one page table and graph which describes the relationship between the risky assumption values and the variability (or risk) of the resulting measure.

Click on Rev-usp Unit Sales to top right, click on Price Multiplier to top left, click on Cost Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type 1000 in the number of trials, modify the Risk Assumptions as below, then Click Run. Select Column Stacked from Graph Listbox and Probability Distribution from Data Listbox to have your graph match the one pictured.

Risk Assumptions | Lowest | Likely | Highest |

“Unit Sales Prices Multiplier” | “90” | “100” | “110” |

“Unit Sales Cost Multiplier” | “100” | “105” | “110” |

- You can vary many assumptions at the same time using planEASe risk analysis. Clicking the Unit Sales Prices Multiplier causes planEASe to suggest a range for the cost number (See grid at top of screen). You can continue choosing assumptions to be included in the risk analysis run. planEASe Risk Analysis (Monte Carlo Simulation) will run trials, randomly selecting from the assumptions and range you have chosen for each trial. planEASe will completely compute all cash flows and NPV’s for each trial run. You tell planEASe how many trials to run-more trials are more accurate but also take more time. In this example, we are using 1000 trials. When you use risk analysis, you need to make sure that you enter enough trials to get a good sampling of the possibilities. Full explanations are available in the manual and www.planease.com.
- For each cost variation, planEASe changes the draw loan automatically. For each assumption change shown, planEASe has changed the construction draw associated with the cost, then planEASe recomputes the NPV a thousand times. All in a few seconds!!!
- The results tell us that there are combinations of the Unit Sales Prices Multiplier and the Unit Sales Cost Multiplier that lose money, and combinations that make money. The thousand trials showed an Average NPV of $91,864. Since the numbers are chosen randomly, your “run” of 1000 trials will produce slightly different results from these shown here – more trials equal less variation. Are there other assumptions that could be included in the risk analysis?

+/- Suggested Reports for Unit Investments

- Project Cost Summary
- Project Bill of Materials
- Project Cost Schedule
- Unit Sales Summary
- Unit Sales Schedule
- Unit Sales Draw Loan
- Unit Sales Profit

- Detail Analysis - Each planEASe Model contains several Multiple Page Types Typically, you enter several pages of each type in an Assumption Set. Basic Analysis adds the results for all the pages of a particular type together, and displays the total in the appropriate column. Detail Analysis allows you to examine and report the detail results for each group of pages of any Page Type.

- Basic Analysis (IRR, NPV, MIRR) Creates reports that include Before Tax Cash Flow Projection, Taxable Income Projection, and After Tax Cash Flow Projection. Measures shown include Internal Rate of Return (IRR), Net Present Value (NPV) and Modified Rate of Return (MIRR), all before and after tax.

- Reports a complete income statement for 1 to 99 years, depending on the chosen holding period. Shows Income, Reimbursements, Expenses, NOI, Debt Service, Capital Expenditures, Before Tax Cash Flow, After Tax Cash Flow, and Sale Proceeds.. Then computes Capitalization Rate, Cash on Cash, Gross Income Multiple, Debt Coverage Ratio, Breakeven Occupancy, Loan Balance/Property Value, NOI/Property Value, Gross Income Multiple, Operating Expense Ratio, Internal Rate of Return (IRR), and Net Present Value (NPV) before and after tax for each of the years. Also shows Common Size and $/SquareFoot Reports. These reports may be configured in more than 5,000 variations by setting the list and checkboxes below the report on screen. MILLIONS of user configurable graphs are available here by adding the Graphics Extension.

- Shows the Revenues, Expenses, Net Operating Income (NOI), Debt Service and Cash Flow Before Tax for the Property for the chosen time period (Month, Quarter or Year). Computes Capitalization Rate, Adj. Capitalization Rate, Cash on Cash Before Tax, Adj. Cash on Cash Before Tax, Cash on Cash After Tax, Adj. Cash on Cash After Tax, Accounting RoR Before Tax, Accounting RoR After Tax, Current RoR Before Tax, Current RoR After Tax, Debt Coverage Ratio, Breakeven Occupancy, Loan Balance/Property Value, NOI/Property Value, Gross Income Multiple, Operating Expense Ratio, IRR and NPV Before Debt, Before Tax or After Tax. Many Pie Charts are available here by adding the Graphics Extension.

- Shows (in English) the assumption values used to generate your analysis. 'Show Page Notes' allows you to generate the report with or without the optional page notes you can attach to each assumption page. 'Refer Revenues' allows you to skip the revenue assumption pages when you would prefer to use the Lease Analysis Reports to document your revenue assumptions instead.

- TitlePages is a Multiple Document Interface (MDI) word processor incorporated into planEASe to enable you to process and print documents that use the same Page Setup as your planEASe Reports and Graphs. Thus you may produce planEASe documents, reports and graphs bearing consecutive page numbers with the same appearance so that the entire presentation package appears to have been produced by the same software (as indeed it has).