All About Commercial Real Estate

Did you know that you can qualify for a residential mortgage for fourplex? How great is that? If you’re asking why is this great, then I have an answer for you. Residential mortgages are less expensive. The bank is also able to offer a higher leverage, or loan amount, for your purchase. If the bank puts in more money, then you can put in less. Grant it your will pay a higher mortgage, but you now have that option if your short on cash. Use this model to help determine the cost of your purchase, rental increases, and future profit. Use this excel template to model how your investment will preform over the long term.

How much does the bank charge for using their money? That is a good way to look at the issue of interest rates. If the cost of borrowing money, aka the interest rate, is too high that will mean more of your profits will go to the bank. If more of your profits go the bank then your DSCR, Debt Service Coverage Ratio, will not be enough to qualify for the loan. I explain all the terms and lingo you need to know in this spreadsheet as well. Use this excel template to determine how much your mortgage will be with different interest rates.

Is there high demand and low supply? Are construction costs reasonable? When assessing the appetite of the market for more supply, you need to do your homework. Building is a risky business, and it can easily go wrong. You should carefully budget and plan you build. To start, download this form, to help you outlay all your costs and budgets. From there the model will calculate, the returns you could make. Remember, a model is only as good as its inputs, so make sure the input numbers are accurate. Use this excel template to help determine you profit and value after building.

Oooooowwweehh, taxes ☹ Take a deep breath, and let’s look at how much the government will take. This model helps you understand how much you have to pay after your profit from the sale. Luckily, the taxes are lower than your Federal Income Taxes, but still quite a lot. You should factor taxes into your equation on how much you are able to take to the bank. Use this model if you want to find out how much you will take to the bank, and how much the IRS will take to the bank.

Many of my clients start out with small, non-branded hotel or motels. From there they climb into bigger properties, usually through a value-add approach. Afterwards, they take on larger more well-known brands, such as Hilton, Marriott, Clarion, and more. Then onwards and upwards to develop hotels. What starts small can very well grow big, but first let’s get down to basics. Here I go over what may be the very beginning of your hotel ownership journey. Use this excel template to determine how much a hotel is currently worth.

We have all heard the saying, ‘It’s a numbers game’. Yes, it’s true, and the saying takes on a whole new meaning in the real estate world. Developers, investors, and deal sponsors all need a firm grasp of how their projects will perform. If the numbers don’t pencil, you should not buy the asset. Many investors understand the concept of needing a financial model, but need a helping hand when building their own excel proforma. A proforma is a projection of how a property will do throughout the course of your ownership. I have developed this basic model to provide a high-level overview of your next real estate investment. Now you can say with confidence, ‘it’s all about the numbers’.