You have found a vacant plot of land for sale which you believe wouldbe a good site for an apartment building. You want to put in a bid and you want to ensure that your bid is the maximum possible. The following are your projections for this development: 

You can build 200 units, 80m2 each (total net saleable area of 16,000 m2) the building efficiency will be 80%. The development will take 6 months to build and sell. The estimated sale price of each unit will be R850,000. Closing costs will be 4% of gross value upon completion. Hard costs will be R5000/ m2 of gross buildable area soft costs (including property tax, consulting fees, and legal fees) will be 20% of hard costs. Cash for hard and soft costs will be advanced in 6 equal advances at the beginning of each month in the development process. Interest will accrue at a rate of 11% (per annum compounded monthly) with all principal and interest due at the end of the 6-month construction phase. The developer's profit will be 14% of the net value upon completion. Land purchase will be 70% financed, with an interest accruing loan at a rate of 14% (per annum compounded monthly), with all interest and principal due at the end of 6 months. cash flows received in the future will be discounted at 16% (per annum compounded monthly).

i)  Calculate the gross sale proceeds and net sale proceeds upon sale of the completed development.
ii) Make a construction loan schedule and calculate the interest that will accrue on the loan over the 6-month construction period.
iii) Calculate the residual to land and land financing costs.
iv) Calculate the maximum price that the land can be purchased for.
v)  Explain the various types of risk that the developer would be exposed to in the scenario above.

Answer rating: 100% (QA)

i Gross sale proceeds are the total amount of money that will be brought in from the sale of the units This is calculated by multiplying the number of ... View the full answer