Our investor/partners tend to think of these projects as an alternate asset class which diversifies their existing portfolio and shelters some assets from the fluctuations of the equity markets. Their level of involvement is strictly up to them. Most trust Turnstone to design the home and make material selections that will maximize the investor's return on investment. They trust us to put their best interests above all other considerations. In fact, it is not uncommon for us to steer an investor away from an opportunity if we think the risk/return profile is not favorable.
We are comfortable working with sophisticated investors and structuring transactions where our margins are adjusted based on the investor's results.
Turnstone has developed an Excel© spreadsheet-based model to help investors evaluate potential investments. The tool creates a top-level overview of expected cash flows and is not intended to present a detailed analysis of construction costs. Prior iterations of our model could forecast overall cash flows, but could not compute an Internal Rate of Return (IRR). IRR is dramatically influenced by the timing of cash flows as well as the use of debt, complicating these calculations.
The newest version of the model computes time -weighted returns under multiple resale scenarios including sale of a completed spec home, a turnkey sale during construction, flipping the land or assigning the contract to purchase the land to a new buyer. Since the resale scenario can change over the course of an investment, the model allows the investor to easily modify the resale scenario to evaluate the results.
The model accommodates different borrowing scenarios for both land and construction costs, and can also handle building a spec home on land subordinated by the original owner. Realtor commissions and transfer taxes are computed based on the most common outcome for each resale scenario.
The investor enters assumptions about key dates including the land purchase date, the commencement and duration of construction and the contract and settlement dates for the resale. These assumptions feed “date arithmetic” formulas that make a time-weighted return calculation possible.
We only share this proprietary model with current and potential investor-partners who have agreed to protect our intellectual property. If you (or one of your clients) is interested in working with Turnstone to make speculative real estate investments we would be happy to demonstrate this powerful tool at your convenience.
Turnstone Custom Homes does not provide investment advice. The model’s calculations must be independently verified for accuracy and the inherent assumptions may not apply to every situation. Investors are strongly encouraged to consult with their own legal, accounting and realty advisors before pursuing any investment opportunity. There are different ways to compute IRR. Our model relies on the accuracy of Excel© functions to produce IRR calculations. Excel© is a copyright of Microsoft Corporation.
Please contact Harvey Ryan for more information.