Subdivision Case

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Case Study: Absorption of Subdivision Lots in Sandy, Oregon Sandy is a small city along Highway 26 between Portland and Mount Hood, with an estimated population of 8,420 according to PSU’s Population Research Center. At the height of the recent housing boom in 2006, there were 193 housing starts in Sandy. Last year there were 45. By my count there are nearly 450 unbuilt vacant lots, with street improvements and all utilities to the site. That is a ten year supply at current absorption. At the south end of town, the Snowberry Subdivision has about 100 vacant and unsold lots. [pic] Let’s look at three scenarios of lot absorption for our subject property with its 100 unsold lots. The first and most optimistic premise is indicated…show more content…
Average lot price $50,000. Discount Rate 10%. Other parameters as shown above. Determine the Present Value of the Cash Flows, and the Present Value per Lot. Year |# of Lots Sold |Ave. Lot Price |Gross Annual Cash Flows |Mark. $ Misc. costs |Developer's P&O |Net Annual Cash Flows |Discount Factors |PV of Cash Flows | |0 |0 | |0 |0 |0 |0 |1 |0 | |1 |10 |50000 |500000 |25000 |25000 |450000 |0.9091 |409095 | |2 |10 |50000 |500000 |25000 |25000 |450000 |0.8264 |371880 | |3 |10 |50000 |500000 |25000 |25000 |450000 |0.7513 |338085 | |4 |10 |50000 |500000 |25000 |25000 |450000 |0.683 |307350 | |5 |10 |50000 |500000 |25000 |25000 |450000 |0.6209 |279405 | |6 |10 |50000 |500000 |25000 |25000 |450000 |0.5645 |254025 | |7 |10 |50000 |500000 |25000 |25000 |450000 |0.5132 |230940 | |8 |10 |50000 |500000 |25000 |25000 |450000 |0.4665 |209925 | |9 |10 |50000 |500000 |25000 |25000 |450000 |0.4241 |190845 | |10 |10 |50000 |500000 |25000 |25000 |450000 |0.3855 |173475 | | | | | | | | |Total |2765025 | | | | | | | | |Rounded |2765000 | | | | | | | | |PV per Lot |27650 | | (2) Using a slightly more optimistic model, assume that both the pace of absorption and lot pricing will increase over the next few years: Years 1, 2, and 3: 10 lots per year at $50,000/lot Years 4 and 5: 20 lots per year at $55,000/lot Year 6: 30 lots per year at $60,000/lot Determine the Present Value of the Cash
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