Description

Have you ever wondered why proformas play a crucial role in the world of land development? 

In today's episode, Shane Melanson unveils the significance of realistic assumptions when embarking on a development project, shedding light on how entrepreneurs are transforming investments into lucrative net worth and passive monthly cash flow. Discover the challenges of obtaining reliable information gaining insights into navigating competitive environments, seeking mutually beneficial partnerships, and anticipating underground civil complexities. 

This episode unveils invaluable advice for those aspiring to achieve success in the realm of development.

[00:00 - 06:42] Navigating Proformas and Assumptions

• A proforma is considered a story that encompasses all the assumptions of a development project, enabling developers to gauge the authenticity of the numbers involved
• Developers can manipulate certain figures in a proforma, such as interest rates, rental rates, cap rates, and costs, to create desired outcomes, highlighting the need for careful analysis and scrutiny
• When considering new development opportunities, developers should thoroughly examine the assumptions underlying the proforma, particularly regarding costs and rents, to make informed decisions and ask relevant questions
• Obtaining reliable information and connecting with experienced individuals in the industry can be difficult, requiring trust-building and understanding the motivations of those involved

[06:43 - 11:58] Thriving in a Competitive Environment

• Developers operate in a competitive landscape with limited land and development sites, so it's important to understand the competitive nature of the industry
• It's crucial to identify trustworthy individuals for guidance and information while recognizing that their experiences and perspectives may vary
• By asking the right questions and gaining practical experience, developers can refine their assumptions over time
• Understanding costs, revenue, and debt and prioritizing cash-on-cash returns helps developers make informed decisions, avoiding manipulation of metrics like IRR and cap rates

You can connect with me on LinkedIn, follow me on Twitter, and watch my videos on YouTube. If you want to go even deeper into the world of commercial real estate, head over to Shane Melanson, a roadmap to investing in commercial real estate! Get my book Club Syndication - How The Wealthy Invest Their Money 

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Tweetable Quote:

"And so when you combine the right questions with the right people, that's when you can start to formulate and put together your own set of assumptions," - Shane Melanson