Essential Real Estate Modeling in Excel

1
Essential Real Estate
Modeling in Excel
Practical guide for Business Analysts, Management
Consultants & Investors

2
Modeling real estate in Excel is not an easy task. In this course I will show
you how to model different business models related to real estates.

3
You will learn how to decide whether to buy or rent an apartment for
yourself. I will show you how to make more rational decision with Excel.

4
We will also have a look at how to model other business models related to real
estates in Excel. We will look at buying properties and renting it to others.

5
We will model a Hotel Business Model in Excel as well as a
lighter version of a similar business model - Airbnb chain.

6
You will also learn how to model so called flips where you
buy, renovate and later on sell the property at a higher price.

7
This presentation will help you model real
estates on the level of top management
consultants and to make more rational decisions

8
Modelling Buy & Rent Modelling Hotels & Airbnb
Essential Concepts
Modelling Restaurants
Modelling Flips

9
What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
Essential Real Estate Modeling in Excel
$190
$19
Click here to check my course

11
Essential Concepts –
Introduction

12
Modeling real estates requires learning certain concepts that will help you handle
the long-term nature of real estates. This is what we will discuss in this section.

13
In this section we will discuss the following concepts
Main business models in
real estate
Time value of money NPV & IRR
Total cost of ownership
Rent or buy a house –
case study
Types of Loans

14
Main business models in real
estate

15
There are 4 main things you can do around the real estates.
Real estates
But to Sell Rent Build Servicing Real Estates
Light Flips Buy & Rent as is
Buy & Rent after upgrade
Construction Companies
Developers
Other
Repair & Maintenance
Services
Managing Properties
Other
Extensive Flips
Buy & Keep for long time
(protection against inflation)
Buy, Remodel and Rent
afterwards
Rent to Rent
Hotel Model
Airbnb Model

17
Let’s first start by calculating what is the future value of 100 USD
100 100
Today After 1 year
100
After 2 years
Nominal Value
Interest rate you can earn
every year 5% 5%
Future Real Value of 100
that we have today 100 105 110
Nominal
Value x (𝟏 + 𝒓)𝟏 Nominal
Value x (𝟏 + 𝒓)𝟐

18
Now imagine that the you are getting 100 USD every year. You want to
calculate the Present value of the money
100 100
Today After 1 year
100
After 2 years
Nominal Value
every year 5% 5%
Present Value
100 95 91
Nominal
Value
(𝟏 + 𝒓)𝟏
Nominal
Value
(𝟏 + 𝒓)𝟐

20
Let’s start with a short definition
 NPV stands for Net Present Value
 NPV is the difference between the present value of cash
inflows and the present value of cash outflows over a
period usually related to some investment
 It’s used to determine whether something (action,
investment etc.) makes sense or not
NPV =

21
Just as a reminder Present Value of money is different than the Nominal
Value
100 100
Today After 1 year
100
After 2 years
Nominal Value
every year 5% 5%
Present Value
100 95 91
Nominal
Value
(𝟏 + 𝒓)𝟏
Nominal
Value
(𝟏 + 𝒓)𝟐

22
Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%)𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%)𝟐
300
(𝟏 + 𝟓%)𝟑
300
(𝟏 + 𝟓%)𝟒

23
NPV enables you to make decisions about specific investment
NPV 0
>
 The investment can generate more cash than it
requires. Can be considered to be done
NPV 0
<
 The investment will be eating away cash. Rather
consider not doing it
NPV 0
=
 Neither creates nor destroys value. Look for
other criteria i.e. strategic, tactical factors

24
Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%)𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%)𝟐
300
(𝟏 + 𝟓%)𝟑
300
(𝟏 + 𝟓%)𝟒

26
 IRR stands for Internal Rate of Return
 IRR is a discount rate that makes the net present value (NPV)
of all cash flows from a specific project equal to zero
 IRR tells us how much you would have to earn on saving
account every year to get to the same results as from the
investment you are analyzing
IRR =

27
If you want to decide on whether to do certain investment or not
compare IRR with the right interest rate
IRR
Interest
rate
>
 The investment can generate higher returns than
the alternatives. Can be considered to be done
IRR
Interest
rate
<
 The investment will generate lower returns than the
alternatives. Rather consider not doing it
IRR
Interest
rate
=
 The investment is as good as other alternatives.
Look for other criteria i.e. strategic, tactical factors

28
NPV and IRR gives you the same directional information
NPV 1 NPV 2
>
 Investment 1 is better than Investment 2
IRR 1 IRR 2
>
 Investment 1 is better than Investment 2

29
Check the video for more details
Click here to go to the video

31
 All the cost related to owning or using a specific
item / thing
 It will also include the cost of lost opportunity i.e.
money not earned due to spending time on
repairing the thing
Total cost of
ownership
=

32
 Cost of buying a car
 Insurance
 Fuel
 Cost of maintenance including repairs &
parts
 Time wasted on maintenance, parking etc.
 Other i.e. parking tickets, traffic ticket etc.
Let’s compare the cost of owing a car and using a rideshare / taxi / cab
service
 Cost of rideshares

33

34
Rent or buy an apartment / flat
– Introduction

35
Let’s imagine that Peter is considering 2 choice: buying an apartment or
renting it. Let’s use the total cost of ownership to see what makes sense.

36
Let’s have a look at the information that Peter has
Buying the apartment would require
EUR 150 K
Renting cost EUR 600 per month
Interest rate is 3%, inflation 2%, Wage
increase is 5%
Peter currently earns EUR 30 per hour

37

39
Let’s have a look at main elements of the Loan
Principal Interest Paid Payments
Interest rate
 The amount that
you are borrowing
from the bank
Loan Duration
 The price of the
loan you are
borrowing
expressed as a
percentage of the
outstanding /not
paid amount of
the principal
 Number of year /
months after
which you have to
fully repay the
loan
 The price of the
loan you are
borrowing
expressed in value
 Paid monthly or
yearly
 Can be usually
calculated
multiplying the
interest rate by
the outstanding /
not paid amount
of the principal
 The amount of the
money you pay to
the bank
 It will consist of 2
parts: principal
payment and
interest paid

40
Let’s have a look at a loan with fixed annual Payment of 7.4 K – first year
Principal
Interest Paid in
the 1st Year
Payments
Interest rate Loan Duration
100 K 4.0 K 7.4 K
4% 20
4.0 K of Interest
Paid
3.4 K of Principal
Payment

41
Let’s have a look at a loan with fixed annual Payment of 7.4 K – second year
Principal
Interest Paid in
the 2st Year
Payments
100 K 3.9 K 7.4 K
4% 20
3.9 K of Interest
Paid
3.5 K of Principal
Payment

42
Let’s also have some have a look at other important terms
Loan Payment
Schedule
Balloon Payment
 This a table which
tells you how
much you will be
paying every year
principal and
interest paid
 Sometimes called
Loan Amortization
Schedule
 Big payment of the
loan done usually
at the end of the
loan
Mortgage
 This is type of loan
secured by a
collateral of
specific real estate

44
First let’s divide the loan in terms of how they are being paid
Fully Amortized Loan / Annuity
 You pay the loan in equal periodic
payment
 The periodic payment pays the
interest due and part of the principal
Interest Only Loan
 During the duration of the Loan you
pay only the Interest
 At the end there is balloon payment
of the whole loan
Other
 Increasing Periodic Payment
 Decreasing Periodic Payment
 A few balloon payments

45
Let’s have a look how the payment of the Fully Amortized Loan would look like.
Below the data on the Loan
Principal
Interest Paid in
the 1st Year
Payments
100 K 4.0 K 7.4 K
4% 20
4.0 K of Interest
Paid
3.4 K of Principal
Payment

46
Let’s have a look how the payment of the Fully Amortized Loan would look like.
Below the data on the Loan
Principal
Interest Paid in
the 2st Year
Payments
100 K 3.9 K 7.4 K
4% 20
3.9 K of Interest
Paid
3.5 K of Principal
Payment

47
Below the payments throughout the duration of the Fully Amortized
Loan
4,0 3,9 3,7 3,6 3,4 3,3 3,1 2,9 2,8 2,6 2,4 2,2 2,0 1,8 1,5 1,3 1,1 0,8 0,6
0,3
3,4 3,5 3,6 3,8 3,9 4,1 4,2 4,4 4,6 4,8 5,0 5,2 5,4 5,6 5,8 6,0 6,3 6,5 6,8
7,1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Interest Paid Principal paid back

48
Let’s have a look at a how the payments would look like if we took a Interest
Only Loan
Principal
Interest Paid
every year
Payments
100 K 4 K
4 K every period for
Interest
4% 20
100 K of Principal
Payment at the end

49
Below the payments throughout the duration of the Interest Only Loan
4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Interest Paid Principal paid back

50
First let’s divide the loans in terms of what interest rate they use
Fixed rate
 The interest rate is fixed during the
whole duration of the loan
Variable Rate
 The interest rate will be changing
during the whole duration of the loan
 Usually it is related to some market
interest rate set by central bank / FED
Other
 Capped rate – variable but with some
limit
 Adjustable rate mortgage – interest
rate is fixed for a period, after which it
will periodically (for example,
annually or monthly) adjust up or
down to some market index.

51
You can also combine both divisions
Fully Amortized Loan / Annuity Interest Only Loan
Fully Amortized Loan with fixed
rate
Fully Amortized Loan with
variable rate
Interest Only Loan with fixed
rate
Interest Only Loan with variable
rate

52
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
$190
$19

53
Modelling Simple Buy & Rent
businesses

54
Modelling Simple Buy & Rent
businesses – Introduction

55
In the case of Buy & Rent you want to generate enough money from the rent to be able to
cover the repayment of the loan and slowly but surely increase the value of your portfolio.

56
In this section we will have a look at 2 models
Buy & Rent 1 apartment
Buy & Rent multiple
apartments

57
Basic Buy & Rent Model
– Case Introduction

58
Let’s imagine that John is considering investing in an apartment that he
wants to rent. He will be using a mortgage / loan to finance the purchase.

59
Let’s have a look at the apartment that he considers buying to rent
He considers buying 1 small apartment in
Warsaw
He will put USD 20 K of his own money
For the rest he will take a mortgage for 20
years with interest rate 4.0%
Help John estimate how much he can earn
from this investment

60
Buy & Rent Multiple Apartments

61
After the first investment John is considering going big scale and buying
an apartment every year. Help him analyze the value of his assets.

62
Let’s have a look at some basic information that we know about him
He considers buying 1 small apartment
in Warsaw every year
He will invest 20% of his own money into
apartments
For the rest he will take loans for 20
years with interest rate 3.5%
Help John estimate what will be the
value of his assets in the next 20 years

64
Modelling Airbnb & Hotels –
Introduction

65
Now we will move to modeling the business model of a hotel or similar models where you rent
on daily basis (Airbnb, Booking.com etc.). They differ from the traditional Buy & Rent Models.

66
In this section we will have a look at 2 models
Hotel Business Model Airbnb Business Model

67
Main drivers for a hotel business
model

68
Let’s first look at Margin after Variable Costs
# of nights sold
Average Daily Rate
(ADR) Average Revenue
per hotel
x
Average price per 1
night
Additional revenue
per 1 night
# of available
nights
% Occupancy rate
Cost of Breakfast
Booking &
Transaction Fees
Cost of breakfast per 1
night sold
+
x
Cost of Cleaning
the Rooms
Cost of cleaning per 1
night sold
Variable Costs
Margin After Variable
Costs per Hotel
x
# of nights sold
x
x
Average fee as % of
revenue
x
+

69
Now let’s have a look at fixed costs and their drivers
Fixed costs related to
space
Labor Costs / People
# of People
Average wages
# of sq. m
Fee per sq. m
x
x
Other Fixed Costs
Fixed Costs of the Hotel
without Depreciation
+

70
Now let’s have a look at the EBITDA
Fixed Costs of the Hotel
without Depreciation
Margin After Variable
Costs per Hotel
Average EBITDA per
hotel
-

71
Now let’s model the whole chain
EBITDA on Hotel
level
Rent
People
# of People
Average wages
x
Others
+
# of sq. m
Fee per sq. m x
Head Office Costs
Total EBITDA
-
# of hotels
Average EBITDA per
hotel
x

72
Hotel Model in Excel

73
Paul has some capital from selling his SaaS startup. Now he wants to invest some of his
money into a chain of hotels. Help him estimate how much money he has to invest.

74
Let’s have a look at the general information we have
He considers building 1 hotel every
year
An average hotel will have 70 rooms
He plans to build 1 hotel every year for
12 years
He wants to mainly use loans to
finance the investments

75
Airbnb Model in Excel

76
Paul has some capital from selling his SaaS startup. Instead of hotels he considers
also renting apartments and offering them on Airbnb or Booking.com.

77
He considers renting on average 10
apartments every year
He will sublet the apartments on daily
basis mainly via Airbnb
He will take also a loan to cover for
Capex he needs
Help him estimate the Profits in the next
12 years.

78
$190
$19

80
Modelling Flips
– Introduction

81
An interesting business model is the business where you buy the property, you renovate it and you sell it at
higher prices. The so-called flips have to be modeled in a different way. We will discuss it in this section.

82
In this section we will discuss the following elements
The nature of flips Flipping business drivers Modeling Flips in Excel

84
We will be using 3 different terms for flips
Flip duration Slot
 The number of months from
starting the flip to selling the
renovated apartment / house
 The loan that we reuse during
the year to make multiple flips
 Once we sell the property, we
buy immediately another
property that we will be
flipping again
 Slot can be treated as an
amount of money constantly
invested in some property
 Slot can be treated also as 1
apartment that we can be
flipping at any given time. So
the number of slots
determines how many
apartments I can be flipping at
the same time
Flip / Flipping
 Purchase of an apartment /
house that we renovate and
subsequently sell at a higher
price

85
Let see how many flips we can achieve with 1 slot / loan in 1 year
# of months
1st flip
2nd flip
3rd flip

86
Let see how many flips we can achieve with 1 slot / loan in 1 year
# of months
1st flip
2nd flip
3rd flip
4th flip

88
Let’s first look at EBITDA before Head Office Costs
# of flips done on
slot
Average EBITDA per
1 flip before HQ
costs
Average EBITDA per
1 slot before HQ
costs
x
The value of the
property at selling
price
The value of the
property at purchase
price + costs of flip
# of months in the
year
Duration of 1 flip
-
÷
# of slots
Total EBITDA from all
slots before HQ costs
x

89
Now let’s model the whole chain
Total EBITDA from
all slots before HQ
costs
Rent
People
# of People
Average wages
x
Others
+
# of sq. m
Fee per sq. m x
Head Office Costs
Total EBITDA
-
# of slots
Average EBITDA per
1 slot before HQ
costs
x

90
Flip Model in Excel

91
Javier wants to do flips on a bigger scale. He wants to take 1 new loan (slot) every
year. Help him estimate how much money he can make from this business.

92
1 loan line will be reused to buy new
apartments
On average a flip will take him 3 months
By flipping the apartment he can
increase the value by 800 USD / sq. m
Help him estimate the Profits in the next
12 years.

93
$190
$19

94
Badass
Consultants
Blog
Subscribe to our channels:

95
Project Management for
Management Consultants
Practical Guide
presentation
Check also my other presentations

96
Personal Finance using
Management Consulting Hacks
Practical Guide
presentation

97
Decision Making for Managers
with Excel
Practical Guide
presentation

98
How to train Business Analysts
& Management Consultants
Practical Guide
presentation

99
Essential Accounting & Finance
for Management Consultants
Practical Guide
presentation

100
How to solve problems like
Practical Guide
presentation

101
KPIs for Management
Consultants & Business Analysts
Practical Guide
presentation

102
FMCG for Management
Practical Guide
presentation

103
Strategy for Management
Practical Guide
presentation
For more information on Strategy check also my other presentation

104
FMCG for Management
Practical Guide
presentation

105
Supply Chain for Management
Consultants
Practical Guide
presentation
For more information on Supply Chain check also my other presentation

106
Project Management for
Practical Guide
presentation

107
Personal Finance using
Management Consulting Hacks
Practical Guide
presentation

108
Decision Making for Managers
with Excel
Practical Guide
presentation

109
How to train Business Analysts
& Management Consultants
Practical Guide
presentation

Essential Real Estate Modeling in Excel

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Essential Real Estate Modeling in Excel

Similar to Essential Real Estate Modeling in Excel (20)

More from Asen Gyczew

More from Asen Gyczew (13)

Recently uploaded

Recently uploaded (20)

Essential Real Estate Modeling in Excel