Commercial Real Estate Underwriting Template – This article is a tutorial on how to use the free multifamily analysis spreadsheet. I suggest you enter your email below, download the template, open it and watch it live. At the end of the lesson, there is a video showing the example of signing a real estate contract.
A powerful contract analysis document that allows you to write a real estate investment in just 15-20 minutes. Enter your information below to access.
Commercial Real Estate Underwriting Template
The first table of characters; “Summary” is where you enter general information about the property, as I’ve done below.
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Transaction Fees and Closing Costs: These are the various fees charged for closing a trade. This includes legal fees, appraisals, inspections, third party reports, and more.
Today’s Stabilized Cap Rate: What do you think is the actual cap rate for interest-bearing assets if they are fully stabilized and in good structural/maintenance condition? Today’s equity ratio helps determine the remaining equity ratio.
Growth/Year: What is the annual growth rate? A conservative approach should be to use a residual sales ratio higher than the current cost level. In this example, assuming the current cap rate is 5.50% and increases by 0.10% per year over five years, it would be 6.00% (5.50% + 0, current rate 10%*5 ).
Realtor’s Commission: Generally, you hire a realtor to sell a property. They typically try to find anywhere from $75,000-$100,000 on smaller deals to $300,000-$400,000 on larger properties.
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The pricing section is a summary of the various contract metrics. The table calculates different threshold rates and you can select which threshold rate you want to display from the drop-down list. Post-purchase tax adjustments can have a big impact on your operating income (NOI). Many savvy investors want to understand the “tax-adjusted” rate of historical and pro forma NOI returns.
Finally, enter the financing terms (interest rate, loan amount, amortization) on this page. The legal document supports two types of mortgages.
If you are considering a loan, you can select “Yes” on the last line and the multifamily analysis sheet will ask you to enter the month it will be due.
Monthly payments are free and calculated automatically for a clear scenario. All information about the loan is collected in the “loan” tab.
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Under “Loan 2 Financing” you can add a second financing tranche, which is typically used for additional financing or seller financing.
You can ask StackSource questions to learn about the funding options available for your project.
Resale value analysis is a key aspect of any home project. This amount is determined by the residual loss rate you set above. Future sales figures and realized cost of ownership (total and annual) can be viewed.
You can delete or insert lines as needed. If you add a unit type, check that the sum/average includes all the new information.
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Note: If you need to sign up and add more units to your current unit mix, or combine smaller units into a larger rental, see these articles.
You will spend most of your time on this tab. The home board is divided into three parts:
All brown and orange should be corrected (for negative numbers). Ideally, you will have current financial data (T12) for the last 12 months, broken down by month, and financial information for the last two years. If not, you can hide or delete unnecessary columns. For example, if there is no information about the operation in 2017, I can hide this column, so I don’t mind.
The Trailing Three (T3) heading is pink, so data can only be entered for three months. You can do T6, T2 or whatever you like. Make sure you update your header and enter the appropriate monthly data.
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Unnecessary lines can be deleted. I hide them, but removing them is fine and it doesn’t affect the calculation.
If you have an incomplete amount or received a history in a lower format than the standard T12, please read this article.
By clicking on the historical data, you can see the annual T3/T12 split several ways. Many investors like to break down the bottom line by item. I am one of them. It is useful to think of income items as % of GPR. Viewing cost items as a % of effective income (EGI) is particularly common in administrative fees. I’m not a big Per SF guy, but some investors (especially developers) value this metric.
The green column shows the annual historical trend. EGI has historically been all over the place, causing NOI to fluctuate wildly.
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There is only one thing you can do with Gross Potential Rent (GPR). The model takes the current monthly rent from the Unit Mix table, which is updated annually, and increases it by 5% as described above. I deduct 100% of the rent (or rent). I don’t care what the difference is between market rent and actual rent. Where do you want to start renting TODAY? So I always deducted the rental loss from the pro forma.
Lease: Above you can see that there is no share in the pro forma because no assumptions are made. If you leave all three columns blank, the proforma expense is $0.
Void Loss: Void loss is a percentage of GPR. This view is the easiest way to think about it and how 99% of people take it. So is bad debt.
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Garage parking: Historically, car owners have not been charged. I think there is potential. Other comps in the area charge $40-$50 for a garage. In the first year, I think I can pay for 40 units (about half) for $40 a month. The estimate per unit is $40*40*12/84 = $229.
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Utility Reimbursement: Since I published this blog post, I’ve updated the template and the utility reimbursement forecast is no longer a gray box. You can enter individual accounts (water, garbage, gas, etc.) or parts (all combined into one group). The following also applies to energy costs.
Costs: For most costs, I increase each item by 3% from T12. I would say the management fee is 4% of EGI and the savings is $300 per unit. Property tax is in green because the table is calculated elsewhere. We’ll get there soon.
The forecast is the same as my forecast for FY1. The parking lot should be built in FY 2 and I should see the benefit of paying $40 per month at $80 ($40 * 80 * 12/84 = $457 per unit)). The savings would be $300 per year. Investors rarely install an escalator for reserves.
Excel ignores 20% and $110,000, using 3% growth in FY1. For clarity, make sure there is only one guess for each element (except for the white cells, which automatically calculate the house sign).
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You rate each line item as a percentage increase (or decrease) over the previous year, excluding vacancy fees, bad debt and property management fees. Consider vacancies and bad credit as a percentage of your GPR. The management fee is a percentage of the EGI. This reminder is marked in the template so you don’t forget.
After entering all the assumptions, you can see the cash flows that make up the NOI on the right.
I have studied housing in at least eight states. Property taxes vary greatly from person to person, so I created a simple but effective real estate survey. No matter where you live, you can file your property tax return accurately.
As a simple example, let’s say a building is worth $5 million and you’re thinking of paying $10 million for it. The applicable tax rate is 2.5%. Current taxes are $125,000 (2.5% x $5 million).
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If you paid $10 million, how much would the property be worth? Could it be 100% of the retail price? Could it be 75% of the retail price? If increased by 100%, this would result in $125,000 more tax than currently paid (2.5% * $10 million = $250,000).
How long does it take to see this growth? Year? Two years? Three? In Minnesota, where I live, it’s usually two years (depending on the time of sale).
You put in most of the guesswork and we can see the investment performance. Only a few variables are required as shown below.
The biggest guess is the price! How much are you willing to pay? When financing, you need to determine whether you will use one or two loans. We are using a Freddie Mac loan, so I checked Second Financing as No. After all, it’s best if you make a deposit that works. I usually come across a nice object for $1000 each
