Sources and Uses of Funds

The Sources and Uses of Funds statement is a financial document that businesses, including those in real estate, use to understand where their money is coming from (the sources) and what they are spending it on (the uses). This document is commonly used in project finance, including real estate development, to outline how the project will be funded and what the money will be spent on.

Sources: This refers to where the funds are coming from. In the case of real estate, sources of funds could include:

Equity: This is the money put in by the owners or investors. This could be the developer's own money, or it could be from outside investors.

Debt: This is money borrowed from a bank or other lender to finance the project.

Grants or subsidies: In some cases, a project might receive financial support from government programs.

Sale of assets: If the project involves selling off part of the property or other assets, that money would be listed here.

Uses: This refers to what the funds are being used for. In real estate, typical uses of funds might include:

Land acquisition: If the project involves buying land, that cost would be listed here.

Construction costs: This includes all the costs of physically building the project, from materials to labor.

Soft costs: These are the other costs associated with a project, like architecture and engineering fees, legal fees, insurance, and permits.

Contingency: This is a reserve to cover any unexpected costs that arise during the project.

Interest Reserve: This is an account that is set aside for the purpose of servicing the debt during the construction period.

The total sources of funds should equal the total uses of funds, showing that every dollar coming into the project has a specific purpose. This document is often used when applying for loans or attracting investors, to show that the project has a solid financial plan.