The Development Budget (Sources & Uses)

Every deal is summarized in a Sources & Uses statement.

Uses (what the money is spent on)

• Land acquisition
• Hard costs — sitework, building construction, utilities
• Soft costs — design, engineering, permits, legal, financing fees
• Contingency — a reserve (often 5–10%) for surprises
• Carrying costs — interest, taxes, insurance during construction

Sources (where the money comes from)

• Debt — a construction loan (commonly 60–75% of cost)
• Equity — your cash and investors' cash (the rest)

Sources must equal uses. The budget is the backbone of the pro forma and the lender's underwriting.

Discipline

Underestimating costs is the classic killer. Pad your contingency, get real subcontractor pricing early, and don't forget the soft costs and carrying costs that newcomers overlook.

Going Deeper (Intermediate)

The development budget is a Sources and Uses statement. Uses = where money goes: land, hard costs, soft costs, financing costs, contingency, and developer fee. Sources = where it comes from: debt + equity. Sources must equal Uses.

Advanced / Pro-Level

Build it like a lender will read it:

• Hard costs (sitework + vertical) vs. soft costs (A/E, permits/impact fees, legal, marketing, taxes) vs. financing costs (interest, loan fees).
• Contingency (~5–10%) is essential — development is uncertain.
• Developer fee compensates the sponsor.
• Sources: a construction/land loan (senior debt) + equity (sponsor + investors).
• Impact/development fees can be a surprisingly large soft cost. If Sources < Uses you have a funding gap to close before you start.

Practice Challenge

Your Uses total $10M but your construction loan is $7M and you've raised $2.5M equity. What's the problem? (Answer: a $0.5M funding gap — Sources ($9.5M) don't equal Uses ($10M); you must raise more equity, increase the loan, or cut costs before proceeding, because a project that starts underfunded stalls mid-build.)

In Practice

A developer forgets soft costs and carrying costs in the budget — and the project runs short mid-construction. Sources must equal uses, with a real contingency.

Common Mistakes to Avoid

• Forgetting soft and carrying costs
• No contingency reserve
• Sources not matching uses

Takeaway: Sources must equal uses — and pad your contingency; underestimating cost is the classic killer.

Educational content — not legal, engineering, or financial advice. Requirements vary by jurisdiction; always confirm with the local authority and your professional team.