What is a financial run and why is it key in real estate projects?

What Is a Financial Projection and Why Is It Key in Real Estate Projects?

Financial projections are essential tools for any investment project, especially in the real estate sector. A financial projection is a flexible tool that adapts as the project and its conditions evolve.

A Dynamic Tool, Not a Static Document
A financial projection is not a final, closed, or definitive file. On the contrary, it is built and adjusted based on variables that can change. That’s why it’s considered a dynamic tool that must be reviewed throughout the project’s development: at the beginning, in the middle, before execution, and even during operations.

What Does a Financial Projection Include?
In simple terms, a financial projection answers two questions:

  • How much am I going to invest?

  • How much am I going to recover (and in how much time)?

But it’s not enough to know these raw numbers—they must be distributed over time. Not all expenses or income occur at the same time. For example, in a real estate development, you don’t buy the land, build, and sell everything in one day. Each stage takes months or even years, and that impacts the financial analysis.

That’s why projections are organized by months, weeks, or years, depending on the type of project.

Income vs. Expenses: The Heart of the Analysis
A financial projection is based on the balance between expenses and income.

Common expenses include:

  • Land

  • Architectural design

  • Permits and legal processing

  • Construction

  • Bonuses

  • Furniture

  • Sales commissions

  • Administration and legal structure

Income may include:

  • Unit sales

  • Space rentals

  • Alternate income (parking, amenities, etc.)

The goal is to compare both cash flows over time and understand when and how the breakeven point and return on investment are reached.

The Time Factor: The Hidden Key
Earning 10 million in one year is not the same as earning it in ten. The value of money changes over time. That’s why a financial projection doesn’t just measure “how much I earn,” but “when I earn it.” This translates into indicators that help assess the real performance of the project.

Key Financial Indicators You Should Know
Financial projections yield multiple indicators. Here are the most important:

  • IRR (Internal Rate of Return): Measures the percentage return on your investment. It should be compared to inflation or instruments like government bonds. If your IRR is below the bank’s interest rate, your project isn’t viable with financing.

  • ROI (Return on Investment): Percentage return on the initial investment. It’s useful but doesn’t account for time.

  • EBITDA: Earnings before interest, taxes, depreciation, and amortization. It reflects the project’s operational performance.

  • Yield (Annual Return): How much your investment generates in one year. Useful for comparing with options like bank investments or government bonds.

💡 Real Example: A project expected to rent at $600 per night ended up renting at $2,400, with 85% occupancy versus the projected 60%. A good financial projection allows you to adjust your strategy based on these market changes.

Being Realistic (and Pessimistic) Is Better Than Being Overly Optimistic
One of the most common mistakes is creating financial projections based on overly optimistic assumptions. Believing you’ll sell twice the number of units the market indicates can lead to false conclusions. It’s always better to project with realistic or even conservative scenarios. If the project is still profitable under those conditions, that’s a very good sign.

What Makes Our Approach to Financial Projections Different?
Unlike many financial analysts who only know the numbers, we combine architecture with finance. We don’t just follow what Excel says—we validate whether it’s architecturally viable. If Excel says you can fit 75 units but the land only allows 30, the projection must be redone.

That integration between spatial logic and financial performance enables the development of much stronger strategies with a lower margin of error.

In Summary: What Are Financial Projections For?

  • To evaluate whether a project is profitable (and how long it takes)

  • To anticipate cash flow needs

  • To compare investment alternatives

  • To reduce risk by making informed decisions

  • To adapt to market changes in real time

A well-made financial projection is as important as a good architectural design or a building permit. It is the foundation of every strategic decision.

Do you have a real estate project coming up?
Want to assess whether it’s worth the investment or need to adjust your strategy?
A solid financial projection can save you millions—and plenty of headaches.