Real Estate Model Example

The model's assumptions sheet drives the entire analysis. It captures property metrics (units or square feet), acquisition costs, financing terms such as LTV, interest rate, interest-only period, and amortisation, plus rent and operating expense growth rates, exit cap rate, selling costs, and hold period.

• These inputs feed the rent roll, operating expenses, debt schedule, and exit timing. The rent roll builds gross potential rent, then applies vacancy and credit loss and adds other income to produce effective gross income.
• Operating expenses cover fixed and variable items including taxes, insurance, management, utilities, and repairs and maintenance. Together these determine net operating income, the core driver of property value and debt service capacity.

The model follows a logical flow: gross potential rent is reduced by vacancy and credit loss, and other income is added to yield effective gross income. Subtracting total operating expenses gives net operating income.

• Debt service is calculated from the debt schedule, which tracks loan funding, the interest-only period, principal amortisation, and the debt service coverage ratio. Unlevered cash flow combines the acquisition cost in Year 0 with NOI, capital expenditures, and gross exit sale value.
• Levered cash flow starts with equity invested in Year 0, adds annual net cash flow after debt service, and includes exit sale proceeds net of loan payoff. Exit valuation uses forward NOI (Year N+1) divided by the exit cap rate, and cash-on-cash return is annual levered cash flow divided by total equity invested.

The cash flow and returns sheet aggregates the analysis to produce key metrics: levered and unlevered IRR, equity multiple, and cash-on-cash return. It also shows property valuation at exit and proceeds distribution.

• The debt schedule outputs DSCR, which is typically checked against a minimum threshold such as 1.20x. Cross-sheet dependencies ensure assumptions feed all modules, while the rent roll and operating expenses flow into NOI, and the debt schedule feeds levered cash flow and loan payoff.
• The cover sheet summarises property details and executive returns. Sign conventions are consistent: revenues and expenses are positive, outflows such as acquisition and equity invested are negative, and debt proceeds are positive in Year 0 with debt service and payoff negative.

This model is used for evaluating property acquisitions and hold-period performance. It helps users test how changes in financing, rent growth, or exit assumptions affect returns.

• The template includes validation checks: changing the hold period must shift exit proceeds correctly, DSCR should be calculated and compared to a typical minimum, remaining loan balance at exit must match the debt schedule, and levered IRR should exceed unlevered IRR when positive leverage exists. Total equity is acquisition price plus costs minus loan proceeds.
• Common pitfalls to avoid include using Year N NOI instead of Year N+1 for exit valuation, failing to dynamically cut off cash flows at the hold period, incorrectly switching from interest-only to amortising, omitting closing costs from Year 0 equity, and calculating LTV on purchase price rather than current estimated value.