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Real Estate Financial Model with Guide

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					REAL ESTATE FINANCIAL MODEL
Real estate analysis requires greater focus on cash flow analysis, detailed planning and financial
modeling to leap full tax benefit. It is a high risk investment, but if handled diligently the rewards are
great. One aspect of real estate investment is getting the price right when buying the property; this is a
determinant of how well the investment will perform. Also financing should be arranged inline to meet
the objective of the investment, by consideration whether the property is to be flipped soon or it is a
long term investment, the consideration ought to be factored when analyzing the project.

The Real estate excel template helps the user determine the financial viability of the property by
delivering the following outputs

        Before tax cash flows
        Income tax liability
        After tax cash flow
        After tax cash flow on resale
        Tax savings on resale
        After tax equity reversion

The decision criteria is based on valuation worksheet, the criteria on decision have to be based on net
present value or internal rate of return. A positive net present value indicates the project is viable for
investment; this is the basis of making decision. The internal rate of return is used to evaluate whether
the project meet the investors required rate of return.

The financing trick for investing in the project is to arrange with financier to apply payment to interest
on loan instead of principle, the advantage of the arrangement is based on the fact that interest is tax
allowable and principle on loan is not. This arrangement allows the investor to leap on great benefits
out of investments and avoid huge tax on capital gain when the property is disposed.

The real estate excel template helps the investor conduct three steps, the steps are cash flow
determination, equity tax reversion for evaluation on gain on sale and decision process to evaluate the
project viability based on net present value or internal rate of return. The manual work for the user is to
key in gross revenues expected to be generated by the property, expenses associated with revenues and
selling commission plus the effective tax rate. The template calculates the cash flows and presents the
net present value and internal rate of return.

The depreciation is calculated by dividing the cost of property by 39 years, 39 years is the allowed
straight line depreciation for commercial property. The equity reversion recoups back part of
depreciation because of tax treatment. There is tax on capital gain when a property is sold at a price
higher than the acquiring cost; this is taken care off by equity reversion process. The equity reversion
process produces the income after tax.

The system of determining the viability of the project is same for small or large projects; the benefits
are leaped by smartly organizing financing and tax arrangements.
REAL ESTATE INVESTMENT ANALYSIS FINANCIAL MODEL


The Cost of the Property      $ 129,000.00

The Sale Price                $200,000.00

Before Tax Cash Flows
                              Year 1          Year 2           Year 3          Year 4          Year 5
Gross Rent                     $ 8,000.00      $ 7,000.00       $ 22,394.00     $ 23,962.00     $ 25,639.00
Vacancy                        $ (3,130.00)    $ (2,930.00)     $ (2,687.00)    $ (2,396.00)    $ (2,564.00)
Effective Gross Income                4,870            4,070          19,707          21,566          23,075
Operating Expenses             $ (3,664.00)    $ (3,884.00)     $ (4,117.00)    $ (4,364.00)    $ (4,626.00)
Advertisements                 $   (600.00)    $    (636.00)    $   (674.00)    $ (715.00)      $ (757.00)
Net Operating Income           $    606.00     $    (450.00)    $ 14,916.00     $ 16,487.00     $ 17,692.00
Mortgage Payment/ Interest     $ (9,869.00)    $ (9,869.00)     $ (9,869.00)    $ (9,869.00)    $ (9,869.00)
Before Tax Cash Flows          $ (9,263.00)    $ (10,319.00)    $ 5,047.00      $ 6,618.00      $ 7,823.00


Income Tax Liability

Net Operating Income          $    606.00 $    (450.00) $ 14,916.00 $ 16,487.00 $ 17,692.00
Depreciation                    (3,307.69)   (3,307.69)   (3,307.69)  (3,307.69)  (3,307.69)
Mortgage Payment/ Interest      (9,869.00)   (9,869.00)   (9,869.00)  (9,869.00)  (9,869.00)
Taxable Income                     -12,571      -13,627        1,739       3,310       4,515
Marginal Tax rate                     0.28         0.28         0.28        0.28        0.28
Taxes(Savings)                $ (3,519.79) $ (3,815.47) $    487.01 $ 926.89 $ 1,264.29


After Tax Cash Flows

Before Tax Cash flows (NOI)   $     606.00    $    (450.00) $ 14,916.00 $ 16,487.00 $ 17,692.00
Taxes (Savings)               $   3,519.79    $   3,815.47 $    (487.01) $ (926.89) $ (1,264.29)
After Tax Cash Flow           $   4,125.79    $   3,365.47 $ 14,428.99 $ 15,560.11 $ 16,427.71
                                 Cash Flow on Property Sale

Before Tax Equity Reversion

Property Sale Price                     200,000.00
Selling Expenses                 $        4,000.00
Net Sales Price                         204,000.00
Unpaid Mortgage Balance          $      (79,655.00)
Before Tax Equity Reversion             124,345.00


Tax Savings on Resale

Estimated Sale Price                    200,000.00
Selling Expenses                         (7,418.00)
Net Sales Price                         192,582.00
Adjustment Basis                       (112,461.54)
Total Gain/Loss on Sale                  80,120.46
Depreciation recovery                    16,538.46
Depreciation recovery tax rate                 25%
Depreciation recapture tax       $        4,134.62
Capital gain                     $       75,985.85
Capital gain Tax                               10%
Capita gain Tax                  $        7,598.58

Total Tax on Sale                $       11,733.20


After Tax Equity Reversion

Before Tax Equity Reversion      $      124,345.00
Total Tax on Resale              $      (11,733.20)
After Tax Equity Reversion       $      112,611.80
                                                       DISCOUNTED CASH FLOW

Discounting Rate                    20%
Down Payment                        25%
Originating Fee                     10%

                                          Year 1      Year 2     Year 3
After Tax Cash flows                                1          2           3
                                          $ 4,125.79 $ 3,365.47 $ 14,428.99
Discounted Value                          $ 3,438.16 $ 2,337.13 $ 8,350.11

Total Present Value       $    73,487.41
Down Payment              $   (45,150.00) $ 4,125.79   $ 3,365.47   $ 14,428.99

Net Present Value         $   28,337.41

Internal Rate of Return             37%
CASH FLOW




        Year 4       Year 5
                   4            5    12%
        $ 15,560.11 $ 129,039.51     15%
        $ 7,503.91 $ 51,858.09        4%


        $ 15,560.11   $ 129,039.51
				
DOCUMENT INFO
Description: This Real Estate Financial Model provides a template spreadsheet that will help an investor evaluate a piece of real property by producing the following outputs: before tax cash flows, income tax liability, after tax cash flow, after tax cash flow on resale, tax savings on resale, and after tax equity on reversion. This form contains a guide to help investors use this spreadsheet and to evaluate the outputs when making a real estate investment choice. There is also a worksheet to calculate the discounted cash flow (DCF) and internal rate of return (IRR) of the investment.
This document is also part of a package Buying and Selling Real Estate 22 Documents Included