The Investing Series Pt. 3: Excel Investment Analysis With Cash Financing
If you have decided to move forward after evaluating a property after the due diligence stage, you should make some calculations about your real estate investment’s potential to produce income.
This article will teach you how to do a “quick and dirty” property investment analysis for a to-be-built multi-family rental project. While the numbers for hard costs, soft costs, lease rates per square foot, and operating expenses may differ based on the location and parameters of your property, you can use the same calculation methods.
You can download the Excel file below to follow the provided calculations and learn how to do different analyses for your own projects.
The Excel file will provide you with a spreadsheet that looks like the table above. Instead of the numbers provided, you should enter your own assumptions about the number of multi-family units you plan to rent out, the average size of the units, and the lease rate per square foot per month. If you are planning to have a mix of unit types with varying sizes, you can insert additional rows underneath the cell that contains the “Unit Size” assumption and enter the corresponding number of square feet.
To calculate the revenue for a mix of unit types, multiply the average size for each type by the expected lease rate per square foot per month for the different types of units. You can then multiply this result by 12 to calculate your annual revenue.
The equation to calculate the revenue remains the same, whether you are planning to calculate revenues for one type of unit or for many types. In the Excel file, for example, the total project square footage (cell C16) is multiplied by the efficiency rate (cell C8) for an overall estimate of the project’s leasable square footage (cell C17). The project’s leasable square footage (cell C17) is then multiplied by the lease rate per square foot per month (cell C10), and then by 12 to derive the total project revenue (cell F4).