% Renovated question

[Anonymous]

Hi Spencer,

I have a question about the % Non-Renovated and % Renovated lines. In the video, it seems like we’re counting units currently under renovation as renovated, so in month 1 we already have 4% of units being renovated, even though those 4% of units haven’t completed renovation yet. Also, in month 24, we have 100% units renovated, which doesn’t seem to be correct.

Why is it being done this way?

Thanks!

[Spencer Burton]

Hi Wesley,

First off, congrats on getting this far. It is really quite the accomplishment and you should be proud of yourself! Now to your question:

“Why is it being done this way?”

First, keep in mind that the periods in this model are end of month periods. Meaning, ‘Month 1’ encompasses everything that happened from day 1 through day 30 (or 28, 29, or 31) of that month. This is key to understanding the methodology that I used here.

Another thing to keep in mind is that we’re assuming that a renovation takes up to, but not more than one month to complete. In practice, a unit renovation generally takes fewer than a couple of weeks to complete.

So in this particular model, month 1 begins Jan 1 and ends Jan 31. The ‘Renovations’ line is an input where the user enters the number of units to be renovated during that month. So during month 1 (from Jan 1 to Jan 31st) it is assumed that we start and finish the remodel of 10 units, such that by the end of month 1 we have 10 units renovated (or 4.167%) of the 240 total units.

The ‘Renovations’ assumption feeds into the Investment Cash Flow section to dynamically model renovation costs. It also feeds into the ‘Downtime Vacancy’ line and assumes that any units renovated in a given month yield $0 in income.

Thus, as of the end of month 24, 100% of the units have been renovated. However, because the last 10 units were renovated in month 24 and thus unavailable to be rented, the model includes 17,496 in ‘Downtime Vacancy’ that month. It isn’t until month 25, when all units have been renovated and full month’s worth of rent collected for all renovated units that we can call the building “stabilized.”

Thanks for the great question! Happy to answer any follow ups.

Spencer

[Anonymous]

Awesome, thank you Spencer.

I totally understand your methodology now, especially now looking back at the model from a bird’s eye view. Thank you for much for your detailed explanation!

[Author]

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