New developers should create their own financial models. Only by doing so will they truly understand the variables and how each affects financial performance. This paper attempts to walk new developers through a financial model that includes development budget, annual return, and capital return. It is simple enough to create but sophisticated enough to present to investors and lenders. It represents one small residential rental building — not condo, and not office or retail.
Owning a small piece of your neighborhood can be good for you and good for your city. Owners of small buildings benefit by generating income and building wealth, as the immigrants to New England who bought and rented out “triple-deckers.” Small building ownership faces challenges, mostly due to lack of economies of scale. However, every asset class has inherent challenges, so budget for them and focus on the benefits.