, ,

8 Considerations When Reviewing a Broker’s Financial Model Setup

Whether you’re an analyst, operating in acquisitions, or working in a different property-related role, it’s essential to have the skills required to qualify an opportunity, which typically includes reviewing a broker’s financial model setup and verifying the information listed to gain a comprehensive understanding of the property’s true value. There’s a bit of an art to this, and it often starts with speaking to the broker or owner involved in the transaction. You’ll want to carry out the needed research to have the right figures to enter into your real estate financial model setup. When you spend time upfront to find the advantages and potential financial pitfalls related to a property, you’ll be able to gather data that is as accurate as possible for your calculations.

Note from Spencer and Michael: This is another post from our guest contributors and industry professionals. James Nelson is an investment sales broker and Principal and Head of Avison Young’s Tri-State Investment Sales group in New York City. He is also a passionate investor and has successfully launched two real estate funds with capitalizations over $350 million. He is passionate about helping others find success in the industry and has graciously offered to share his expertise with the A.CRE community. A huge thank you to James for offering his insights! Click here to learn more about James or contact him directly.

As you review the broker’s financial model setup, follow these steps to gain the right numbers and information about multifamily properties and setup your financial model as accurately as you can.

1. Check for Concessions in Rent in the Broker’s Financial Model

When looking at a rent roll and estimated revenue figures, you’ll want to dig beneath the surface. Leases often come with concessions such as free rent or support to make renovations. For instance, a 12-month lease with a month’s free rent alters the annual income calculation. If you see a property with units that charge $2,000 monthly but offer a free month of rent every year, you can expect to generate $22,000 annually from each unit instead of the apparent $24,000. Consider the duration and terms of leases, as this will further impact concessions that might need to be made in the future.

2. Determine the Net Effective Rent

Beyond the rent roll, scrutinize the actual collections, including a trailing 12 months (T12) of income and expenses. Review the net effective rent, which accounts for concessions and discounts that affect the rent figures. You may find that the asset has been generating less income in the past than you first thought. You will want to avoid inputting inflated rent figures into your financial model setup, and instead use data that is as accurate as possible to get a clearer picture of what to expect.

3. Look for Future Income Potential

Ask questions about the property and tour inside to identify hidden opportunities. Talk to others about the renovations that could be made, and how those changes could lead to adjustments in rent. Be sure to study what might appeal to future tenants. You won’t want to put in additions that aren’t in demand, and you’ll also need to carry out a thorough cost versus benefits analysis before committing to pricey construction projects.

4. Research the Market

Assess nearby properties, rent regulations, and the unique selling points of the asset you’re considering. Check the employment rates and population growth to see how demographics are shifting. Also, look at how the current owners are marketing units. When thinking about rents, keep in mind that staging and high-quality pictures can influence pricing.

5. Calculate the Right Credit Loss and Vacancy Rate

Before totaling up the units and entering rents for all of them, factor in the vacancy and credit loss. This could range between 3% and 5% but may be different depending on the factors of the market. Check on arrears and indicators that there could be more vacancies in the months ahead.

6. Think About Future Taxes and Insurance

In addition to viewing the taxes paid on the property in the past, consider current and future potential increases. If you’re in an area where taxes are on the rise, or new tax rules have recently been implemented, you’ll need to add those costs into your model setup. The same is true for insurance: these fees can fluctuate, especially after natural disasters. You’ll want to consider future premium costs and speak to an insurance broker to understand the upcoming outlook for the area.

7. Verify Operating Expenses from a Broker’s Financial Model

Inquire about utilities, maintenance, payroll, and capital expenditures related to the property. Understand who bears what expenses and the condition of key components such as boilers and roofs. Ask if you can have access to actual statements to obtain a realistic view. Also don’t overlook ongoing expenses such as accounting and legal fees.

8. Evaluate the Property Management

Find out if the property has been self-managed by the owner or if a third party has been involved. You’ll want to think about your plans for the asset too. If you are going to manage it, remember that you may need to make a significant time commitment to keep everything running. Third-party managers will charge a fee but could have access to lower rates or be able to create efficiencies that reduce operating costs.


When finding the true value of a place, remember that brokers may provide estimated expenses, and you’ll need to qualify the data before entering it into your model setup. The actual revenue and costs will indicate the real return potential and the property’s intrinsic value. By thoroughly assessing these factors, you can make strategic changes to increase income and outperform the market.

About the Author: Highly acclaimed investment sales broker James Nelson is the Principal and Head of Avison Young’s Tri-State Investment Sales group in New York City. During his 25-year career, Nelson has sold properties and loans totaling over $5 billion. James is also a serial real estate investor and has launched two real estate funds with total capitalizations of over $350 million. He is passionate about helping others achieve real estate success and offers regular training through his podcast “The Insider’s Edge To Real Estate Investing.” He regularly lectures at Columbia, Fordham, NYU, Wharton, and his alma mater Colgate. You can connect with James through his Contact Page.