Financial Analysis of Hypothetical 300 Unit Multi-family Value-Add Rehab
It can be very helpful to make a financial model of a multi-family value-add rehab. Such an attempt was made using Googles online spreadsheet system which has the same powerful financial functions as Excel but the convenience of being in the cloud.
(As well the add-on 'OpenSolver' for Google Sheets solves complex optimization problems subject to multiple constraints. In a future post I will use it to try to estimate the optimal number of units to rehab each month subject to constraints - such as maintaining positive cash-flow.)
In this exercise I assumed 15% of units were dedicated to AirBnB with a 35% average vacancy rate and expenses equal to 35% of revenues. A levered cash-flow analysis over five years calculated a property level IRR of 40%. Sponsor and LP contributions were set at 10% / 90% with a waterfall structure of:
Sponsor Lp IRR
Preferred Return 10.0% 90.0% 8.0%
Hurdle 2 25.0% 75.0% 12.0%
Hurdle 3 40.0% 60.0%
Finally a big shoutout to the great guys over at A.CRE
Spencer Burton has put together a fantastic set of CRE financial modeling videos from which I've learned a ton of great stuff,
how to think about spreadsheet modeling, IRR, NPV, and especially waterfall structures:
Also there is the excellent tutorial on multi-family value adds:
