Category: Real EstateListed in this category are financial model templates for real estate businesses and its related sectors. The models are great tools for conducting valuation to those who plan to invest in or buy properties, developers, and other users that involves real estate.
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Dynamic financial model for calculating cash splits to sponsors/investors based on various IRR hurdles getting reached.
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A 3-tab based template to easily enter up to 19 deals and see their resulting IRR's.
Real Estate Industry
The real estate industry is one of the biggest industries that is continuously growing. Generating billions of dollars in revenue every year, even though there were times where the economy in real estate fluctuates, it is still undeniable that this industry is offering a lot of opportunities for startups to turn a profit. This is due to its fast adaptation of huge economic trends that affects real estate businesses greatly such as interest rates, population growth, and economic strength.
The real estate industry, as we know, consists of three primary fields:
Working in this field as called real estate brokers which convenes buyers and sellers of properties, assisting in negotiations for pricing, and facilitating the tasks involved in closing deals towards interested parties. They also offer services such as property appraising and inspecting. The usually earn their keep through commissions based on the agreed percentage of the sale price, split between the buyer’s broker and the seller’s broker. This is why brokers earn more money when closing a higher-priced deal since they get a higher cut. Also, to be a broker, one must get a license in the area they work at.
Different from brokers that usually work for either the buyer or seller of properties, leasing agents work directly with property owners. They deal all the complexities involved with canvassing, investigating, and signing prospective tenants of the owner’s properties. This also includes all the paperwork needed to be done.
In this field of real estate are management companies that operate bigger properties such as buildings. Their tasks are ensuring that the buildings are running properly, checking if the utility expenses are paid, the hiring of staffs, and also performing maintenance. Sometimes, these companies also act as leasing agents. Management companies’ profitability depends on their ability to maintain low vacancy rates since most property expenses are fixed anyway.
It is quite common in the real estate industry to practice intermediary to provide real estate owners with a dedicated sales and marketing support in exchange for commissions. Therefore, it became the main reason for the development of different fields in the industry.
Types of Real Estate Business
When you hear real estate, what’s the first thing that comes into your mind? Isn’t it property, land, buildings, etc.? The term was actually derived from the Latin word of real which is rex. It means “royal” since it is known that kings own all land in a kingdom. The real estate industry is very huge not just in terms of lands and properties but also financially. Thus, it is no wonder there are many entrepreneurs, investors, property owners, wants to start a business in real estate.
There are four types of real estate that are commonly known nowadays:
- Residential Real Estate – this includes the new construction and reselling of residential houses. This is popular to people looking for single-family homes. There are also other residential properties included such as condominiums, duplexes, co-ops, triple-deckers, high-value homes, vacation homes, etc.
- Commercial Real Estate – this includes properties such as shopping centers, malls, hospitals, schools, hotels, offices, etc. Though apartment buildings are used for residential purposes, it is still considered to be a part of the commercial real estate, due to its nature which is, it is built and owned for the sole purpose of producing income.
- Industrial Real Estate – this includes buildings and properties involved in manufacturing, as well as warehouses. The uses of the building and properties can be either for research, production, storage, and distribution of products. But some buildings for distributing goods are also considered as commercial real estate due to the differences in the handling of the zoning, construction, and sales.
- Land – as is, it includes vacant land, working farms, ranches, etc. For vacant lands, it could be developed, undeveloped, early development, reused lands, subdivision, and site assembly.
Nowadays, the real estate businesses cover not only one type of real estate but also combinations of different types of real estate. Thus, giving them more coverage of the potential market in the industry.
Investing in Real Estate
As simple as buying or selling real estate properties are already considered as investing in real estate. Thus, this entails that there are many factors that you need to consider. Will the house value increase while currently staying in it? Will the future interest rates and taxes affect you if you get a mortgage?
It really varies on an individual on how good they are with handling real estate deals, that in the end, they’ll end up starting a business with it. This is what we call house flipping. It’s when you buy a simple house, improve it to make it more valuable and attractive, then you sell it back to the market for a better and higher price.
Another way is when you own several properties, so you end up renting them out. It is very convenient and helpful for you when you are tight with expenses and handling many properties on hand that is not being used. So, might as well earn some extra cash out of it. In some cases, people transform their homes into Airbnb types, as a convenient way to rent out all the rooms available, while others turn their vacation homes into vacation rentals by owner (VRBO)or Home Away.
For those who don’t own any property for housing or building, there are also other options for you to invest in real estate. There are stocks offered that are available to the market from homebuilders. Though it’s a bit risky due to the stock prices fluctuating prices in the market. Last but not the least option is more common which is called the real estate investment trusts or REITS. This is when you invest in commercial real estates, which works just like buying stocks in the residential real estate but its prices are more behind the trends by a few years.
But of course, before you start venturing in these kinds of businesses, you must ensure that you will be able to get the best out of it. Study the market but conducting a research analysis and also make sure that you know the current business cycle of the real estate industry. You don’t really want to start investing in real estate when the market is about to crash. So, be smart and supplement your know-how in the real estate industry.
Real Estate Industry Risks
With how much the real estate industry earns annually, it is no wonder that many entrepreneurs, venture capitalists, and other investors, are interested in starting a business in the real estate industry. But, just like in any industry, one must be aware of the risks that you will have to face.
The following are a few of the common risks in the real estate industry:
- Macroeconomic Factors – this risk is beyond the control of the business owner since it has to do with the local or national economy.
- Changing Demand – location, location, location… this is what they all say that matters the most when working in a real estate business. Location matters a lot so, when there are changes in the demand from the market, some properties become less desirable. But this also goes the same for in times when you predict the areas which will give you a lot of benefit in the future. Basically, the changes in demand can be a good or bad factor that will affect real estate businesses.
- Increased Supply – seeing how great the real estate business is doing in the market, many wants to have a go in this industry too, hence there are many new building properties available for sale in an area. But, this can actually drive the rent and prices of properties to go down due to the overwhelming number of supply available.
- Changes in Priorities and Requirements – this mostly applies to buildings under management companies that are aging. As time passes by, the properties will slowly deteriorate, so there will be changes to ensure the life duration of properties. E.g. indoor air quality, mold removal, etc.
These are just a few out of all the existing risks in a real estate business, but this doesn’t mean that it’s a bad idea to invest in real estate. You will do just fine, as long as you do certain preparations such as building a financial model.
Best Computational Help for you as a Real Estate investor
Are you a real estate investor, always on the lookout for deals that can help in getting attractive returns on your investment? If yes, then you surely come across propositions that are confusing and where you cannot easily decide whether to put in your money or not. This is a problem encountered by many investors like you. Experienced investors have a lot of data and information to fall back upon while relatively inexperienced investors must take a decision based upon their gut feeling. However, in this age of science and technology, you need not take a risk involving hundreds of thousands of dollars anymore. We are eFinancialModels and we bring to you the power of our real estate financial models.
We have the best financial templates
You must have heard about financial model templates. These templates are a treasure house of knowledge for all real estate investors. They combine the principles of finance and real estate in such a manner to make the financial picture much more clear for the investor. This makes it much to take a decision before signing off on a deal. By using our financial model frameworks, you will know much better whether this deal is going to be profitable or not. All you have to do is to update the templates with figures applicable to your specific investment case and run the model to know what the returns on your investment would be.
No need to be the finance expert
Good thing in these financial templates is that you need not be a financial expert to understand the nuances of your investment. No worries if you do not have a sound understanding of the principles of finance. Our experts have everything worked out for you. Do you want to know the present value of cash flows in the project you are interested in? Our computational model will help you in knowing a correct estimate of the future cash flows. Isn’t that great for you as an investor?
Use our templates to prevent huge losses
Imagine a situation where you have fallen in love with an apartment building and also with the asking price demanded by the owner. You are ready to arrange the money to buy the building without ascertaining the future cash flows the building would be able to generate. This is nothing but taking a huge risk as an investor. Thankfully, you now have reliable help in the form of our financial templates. These financial templates cover every aspect of a real estate transaction. They range from residential land purchase, real estate development to commercial real estate valuation and investment models.
A financial template that fits your project
We have you covered whether you are planning to buy an apartment complex or real estate that you plan to buy and develop. Of course, all our models have been simplified to make sure any investor can understand and use them. However, it is expected that any investor trying to work out the profitability of a real estate project has a basic understanding of finance related concepts such as LTV (loan to value ratio), GOI (gross operating income), NOI (net operating income), DCR (debt coverage ratio), CCR (conditions, covenants, and restrictions), and so on. If you have basic knowledge of finance related concepts used in real estate transactions, you can easily use our financial templates to have a clear picture of the profitability of a project.
Remember, it is your hard-earned money that is at stake. Do not take a decision in haste. Try our computation model to get a clear understanding of the profitability of a project before taking a decision to invest. Our financial templates yield the most accurate results.
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