A Break Even Analysis and Potential Profitability of a Proposed Residential Development within the City of La Crosse, Wisconsin USA

A Break Even Analysis and Potential Profitability of a Proposed Residential
Development within the City of La Crosse, Wisconsin USA

Chad M. Clower
Department of Resource Analysis, Saint Mary’s University of Minnesota, Winona, MN
55987

Keywords: Cash Flow, Development, Break-Even Analysis, La Crosse, Wisconsin,
Multiple Listing Service, Map Data, Residential, Subdivision, Profitability, City Planner

Abstract

A break-even analysis was conducted on a proposed residential subdivision development
for a 79-acre farmstead on the southern fringe of La Crosse, Wisconsin USA. Potential
profitability of the development was ascertained by this project. Both the current market
for residential building sites and past sales of lots within existing subdivisions within the
city were analyzed to help determine pricing for lots within this new proposed
subdivision. Past and present real estate data were gathered from Multiple Listing Service
data and La Crosse area periodicals. Map data was acquired from the La Crosse city
planner’s office and a private engineering firm. Investment costs or outflows were land
acquisition costs, development costs, marketing costs, and various indirect costs. These
costs were provided by La Crosse area contractors and real estate companies. Project
revenue was attained strictly through the sale of individual building sites. An analysis of
the projected cash flow over an eight year project timeframe was conducted to provide
the investor with the needed management information for decision-making.

Introduction
individual city lots that are sold in

established neighborhoods within the
La Crosse, Wisconsin USA is a city of
city.
approximately 51,000 people located on

To support estimated growth
the Western border of the state. The city
within the city (US Bureau of the
has exhausted the available land to grow
Census, 2000), La Crosse is expected to
within its natural borders, the
need approximately 40 new households
Mississippi River to the west, towering
per year between the years 2005 and
bluffs to the east and south, and the city
2010.
of Onalaska to the north. Five

With this estimated growth rate
subdivisions serve as La Crosse’s
considered, all 5 existing residential
primary source of new housing starts,
subdivisions in the city will be at least
with an occasional vacant lot popping up
95% full in the next five years (MLS
in established neighborhoods as homes
Data, 1998-2006). This indicates that by
are torn down or parcels are subdivided
2010, with conservative estimates, there
into smaller lots. The scope of this study
will be less than 10 building sites
examines the dedicated subdivisions as
available in only 2 subdivisions in the
the comparable marketplace for the
entire city of La Crosse (Table 1).
proposed development and not

Clower, Chad M. 2009. A Break-Even Analysis and Potential Profitability of a Proposed Residential
Development in the City of La Crosse, Wisconsin. Volume 11, Papers in Resource Analysis. 7 pp. Saint
Mary’s University of Minnesota Central Services Press. Winona, MN. Retrieved (date) from
http://www.gis.smumn.edu

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Table 1. Projected growth of residential developments in La Crosse, Wisconsin.

Subdivision
# of lots # remaining 2006 2007 2008 2009 2010 2011
Pammel Creek
101
49
30
19
11
4
0
Jorgensen Flatts
20
20
10
5
0
0
0
Waterford Valley
52
10
7
4
0
0
0
Vista del Rio
31
10
7
3
1
0
0
Baier Nursery
29
16
10
6
2
1
0
LOTS

105
64
37
14
5
0
REMAINING
LOTS SOLD


41
27
23
9
0
PROJECTED


40
40
40
40
40
HOUSING
STARTS
POTENTIAL

0
13
17
31
40
LOT
SHORTAGE

The Opportunity for Growth
a profit from the sales of the lots. Within

this study was an analysis of past sales
A prime parcel of land was listed on the
data from existing subdivisions in the
market for sale in October of 2006. It
city of La Crosse, an analysis of the
consisted of a rarely sold, 4th generation
parcel for potential building site and
79-acre family farmstead on the southern
street layouts, the determination of
fringe of La Crosse. This prime location
preliminary investment costs, including
is the closest undeveloped land adjacent
land and development costs and the
to the city that is not already provided
projected cash flow, with a break even
city water, sewer, police and fire
point and profitability determined.
protection services. It is situated between

two subdivisions that are considered part
The Current Market for New Home
of the city, Jorgensen Flatts to the west
Construction
and Waterford Valley to the north, and

are provided the city’s appealing
The five residential subdivisions in La
services like sanitary sewer and water
Crosse are the Baier Nursery
(Kirsch, 2006). Currently, most of the
Subdivision, Pammel Creek Addition,
79-acre farmstead is located in the town
Waterford Valley, Jorgensen Flatts, and
of Shelby.
Vista del Rio (Figure 1). Data regarding

these subdivisions was gathered from
Proposal for Development
Multiple Listing Service (MLS) data and

periodical articles written about the
After being approached by an investor, a
subdivisions. Each subdivision has
study was conducted to determine the
covenants that guide or otherwise restrict
feasibility of purchasing the property
the kind of homes that can be built, from
and developing it into a residential
entry level homes built in the low to
subdivision with the intention of making
mid-$100,000’s, to fourth-time
2

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homebuyers with homes that reach
reflected current and future land use of
$250,000 and above. Lots within these
the parcel. The current land use reflects
subdivisions ranged from $3 per square
approximately 22 acres of non-
foot in the Pammel Creek addition to
developable floodplain and a five acre
over $6 per square foot in the Baier
campus with the homestead and
Nursery subdivision (MLS Data, 1998-
outbuildings, with the balance being
2006).
used as pasture and crop land. The future

land use of the study area includes ten
The 79-Acre Farmstead
acres that would be required to be sold

back to the Wisconsin Department of
An interview was conducted with the La
Transportation for the future expansion
Crosse city planner, Lawrence Kirsch,
of Wisconsin State Highways 14 and 61,
and an aerial photograph of the 79-acre
one acre required to be reserved for the
farmstead was attained. This image






















Proposed


Development


Jorgensen

Flatts


Waterford

Valley


Pammel Creek

Addition


Baier Nursery

Subdivision


Vista del Rio



Figure 1. Overview map of existing and proposed La Crosse, Wisconsin subdivisions.

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future construction of a city fire station,
1,566,575 square feet (Figure 2). The lot
22 acres of non-developable floodplain
sizes ranged from just under 12,000
could be rededicated to the city for use
square feet (0.275 acres) to over 34,000
as park reserves, 6 acres would be
square feet (0.781 acres). The range in
considered for the rerouting of County
lot size reflected the desire of the
Trunk Highway MM to the west of its
investor to have the widest possible
present location, and 40 acres would be
market of buyers. The price per square
developed into residential building sites
foot was conservatively determined to be
(Kirsch, 2006).
$3.25 per square foot (MLS Data, 1998-

2006), with entry level lots starting
Potential Site Layout and Land Use
under $39,000 and the upper end lots

priced around $110,000.
The map acquired from the La Crosse

city planner was provided to the private
Preliminary Development Costs
engineering firm BT2, Inc. to determine

a possible lot and road layout suitable
The new map generated by BT2, Inc. as
for the remaining 40 developable acres.
a possible layout for the development
The goal was to maximize the use of the
was analyzed for preliminary
space while providing a range of lot
development costs associated with
sizes to accommodate first through
converting this farmstead into a
fourth time homebuyers. BT2, Inc.
residential development. The main initial
subdivided the land into 106 different
costs include site and retention pond
building sites with a total area of



Figure 2. Development site with proposed road and building site layout.

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PRELIMINARY DEVELOPMENT COSTS

?
Sewer main $ 150,000
? $30/ft. x 5000 ft.
?
Water main $ 150,000
? $30/ft. x 5000 ft.
?
Site grading $ 400,000
? $2/cubic yard x 200,000 yards
?
Curb & gutter $ 76,000
? $8.25/ft x 9200 ft.
?
Blacktop & gravel $ 805,000
? $5.00/square ft. x (35 ft. wide x 4600 ft. long)
?
Engineering

$ 95,000
? 6% of development costs
?
Indirect Costs $ 154,000
? Marketing Costs
? Legal and Accounting Fees

TOTAL COSTS



$ 1,830,000

Figure 3. Preliminary development cost breakdown.



Table 2. Projected cash flow from lot sales.
Year
2007
2008
2009
2010
2011 2012 2013 2014 Totals
Projected Lot

12
24
24
22
13
6
6
106
Sales
Gross Sales

576K 1.15M 1.15M 1.06M 624K 289K 241K 5.09M
Less Outflows:









4% Commiss.

(23K) (46K) (46K) (42K) (25K) (12K) (10K) (204K)
Land Costs (1.20M)
0
0
0
0
0
0
0
(1.20M)
Dev. Costs (1.50M) (330K)
0
0
0
0
0
0
(1.83M)
Total
(2.70M) (354K) (46K) (46K) (42K) (25K) (12K) (10K) (3.24M)
Expenses
Net
(2.70M) 222K 1.10M 1.10M 1.02M 599K 277K 231K 1.85M
Operating

Break
Incomes
Even
Investment (2.70M) (2.48M) (1.38 (274K) 744K 1.34M 1.62M 1.85M

Balance
M)

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grading, sewer and water lateral
development totaled $3,234,000, and
preparation, installation, and attachment
included land acquisition costs,
to present sewer and water mains, curb
development costs, marketing costs and
and gutter installation costs, road
miscellaneous indirect costs. The time
construction costs, engineering costs,
frame to sell all 106 lots was figured at
and any possible associated indirect
seven years, per direction of the investor.
costs such as legal and accounting fees
The break-even point, where sales
(Figure 3). All cost estimates were
revenue matched total expenses,
provided by La Crosse area contractors.
occurred in the middle of the fourth year

of the project. Total potential profit at
Projected Cash Flow
the end of the seventh year, with all lots

sold, totaled $1,856,000.
The projected cash flow of the

development was determined using
Discussion
projected lot sales (MLS Data, 1998-

2006), less total expenses for each year
There are many steps involved with
(Table 2). All lot sales would be
developing a raw piece of land into a
conducted with a La Crosse area broker
residential subdivision. The idea for
for a commission of 4% of the sales
development is first, and arose when the
price. The first year of the project
aforementioned property was listed on
reflects outflows associated with land
the market for sale. Secondly, a market
acquisition and development costs, the
feasibility study, or needs analysis, must
second year reflects expenses associated
be completed. Following this,
with the remaining development costs
preliminary plans must be drawn, with
and real estate commissions, with the
specifications matching the desire of the
remaining expenses over the life of the
investor considered. After these steps are
project associated strictly with real estate
executed, a final feasibility study must
commissions.
be completed to determine if the market

has changed during preparations for the
Conclusions
development. Final investment costs

must then be determined, and all risks
The advertised 79-acre farmstead listed
must be analyzed. A discounted cash
for sale was determined to have only 40
flow could also be computed to calculate
acres of land developable for use as
the value of the profit over the time of
residential building sites. About half of
the investment. This study did not seek
the remaining 39 acres would be used to
to determine this figure and only
rebuild and reroute state and county
analyzed the data for the break-even
highways and the other half, situated in
point of the investment as well as profit
the flood plain, could be dedicated to the
remaining once the project was
city as park and preserve land (Kirsch,
completed .
2006). The actual amount of developable

land to be used for residential building
Disclaimer
sites was determined to be 1,556,575

square feet. The cash inflow from lot
All figures representing costs and
sales was thereby calculated to be
financial projections were based on the
$5,058,868.75. The cash outflows of the
preliminary plans and specifications of

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the development and do not necessarily
reflect the final costs of construction
once a developers agreement with the
city of La Crosse, the WI Department of
Transportation, and the contracted
engineering firm can be reached.


References

Kirsch, Lawrence. 2006. Interview with
the La Crosse City Planner. LaCrosse,
Wisconsin
La Crosse Area Multiple Listing Service
Data. 1998-2006. Chad, you need to
indicate how to access or someone to
contact to access this information
U.S. Bureau of the Census. 2000. La
Crosse County, Wisconsin DOA
Housing Projections to 2025. Indicate
where someone would get this
publication




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