Do real estate developers use any tools to find the best location etc., to improve their irr
This is just a random thought, but do real estate developers use any tools to optimize their [internal rate of return](https://www.investopedia.com/terms/i/irr.asp), if not why? if yes how is it I am interested in finding an answer to this problem.
[{"id": "e5e7swh", "text": "You optimize IRR in positive leverage scenarios with debt.  More debt = higher IRR so long as your effective costs are below your un-levered IRR.  You could sell equity stakes with land at value instead of cost if you have lift.  You could JV and work fees into in for managing it.  As far as tools go, MS Excel is common.  There's Argus and other software, but MS Excel is the best IMO.", "replies": [{"id": "e5etkay", "text": "probably I didn't write my question properly, but how do you predict IRR... you said that is equivalent to debt, is that always true? ", "replies": [{"id": "e5fu9zb", "text": "Create a pro forma.  That process is a fairly substantial undertaking.  Once you have that pro forma, you must do a cash forecast where you anticipate the cash outlay required to bring the project to completion.  After you have the cash forecast, you then try to figure out what your capital stack (Stack of debt, equity, insured deposits, BAs, etc) is.  Then, use the excel XIRR function with your dates and equity movements month over month.  It will spit out an IRR.  As you change your pro forma, schedule, and capital stack, there will be a corresponding change in IRR.\n\n&amp;#x200B;\n\nI would not say it is equivalent to debt.  IRR is the return that the equity attracts.  In a typical project I look at, debt attracts a 5% return in the form of interest, and equity attracts 20% return expressed as IRR.\n\n&amp;#x200B;\n\nHope that helps.  I'm happy to help or answer any further questions you have.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "e5fjben", "text": "So let's use one of my projects as an example.\n\nI built 84 townhomes.  \n\nHow did I decide to do it ........  I added the cost to build, plus the cost of the land, plus the cost of mgmt,taxes,vacancy,etc.\n\nI looked around the area to see what the rental rates were and saw that there was a huge demand for class B housing.\n\nThe project made sense, so I did it.   That's it.\n\nNow this wasn't a $250m downtown high rise, so I didn't need to put together detailed financials and make presentations to the big boy banks but still business does NOT have to be difficult.  If something makes sense you do it.    ", "replies": [{"id": "e5fsq5l", "text": "i agree.", "replies": [], "depth": 2}], "depth": 1}]