Improving Land Fund Investments with a Real Estate Investment Template

By MyVine | April 28, 2011

For those who have developed or bought a real estate investment template in Excel or other good spread sheet program, there are negative and positive methods to estimate the pro forma financials of a prospective real estate investment decision.  Read on to understand more about various approaches.

To start, don’t jump directly into the modeling job without collecting all of the essential data beforehand. You may be under substantial time stress and the seller may not want to reveal critical profit and loss data with you, but it is vital to have correct historic revenue, cost, taxes, vacancies, and insurance coverage figures handy before you start modeling.  Do whatever it takes to get the information you require for the real estate investment template to make a definitive decision.

After that, you should be sure you project cash flows as far in to the foreseeable future as you possibly can, at least until you feel the property will be sold.  When you have a 6 year investing period horizon, you should model at least 8-12 years of cash flows just in case the investment turns out to be a great income producer or there’s a problem reselling it at a reasonable price down the road.

Don’t believe the very first amounts you put into your real estate investment template result in the most probable investment outcome.  Test a minimum of 10-15 scenarios, modifying the funding rates, capital investment, capitalization rates, vacancy, rent growth rate, rehab costs, taxation assumptions, marketing expenses, and so on.  Try to figure out how vulnerable the net income is to various input factors.  You may also automate the model to run 1000s unique scenarios with small boosts and decreases in different key factors.  By testing the model and generating multiple feasible outcomes, you’ll have a far better understanding of the potential dangers and benefits of the investment.

Ultimately, be sure to do top quality data and analysis work and trust your financial spreadsheet to lead the investment options and price negotiation.  If done properly, your analysis may have discovered significant potential opportunity to manage the property more effectively, therefore producing more income and earnings.

Applying these vital steps properly will ensure you get the best from your real estate investment template.

Topics: Buying Tips, Foreclosures, General, Investing, Selling Tips | Comments Off

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