A Note About The Limitations of Microsoft Excel in Modeling Real Estate

I think its important to point out that my All-in-One (Ai1) Underwriting Model for Real Estate Development and Acquisition is not a surefire replacement for your non-Excel valuation/underwriting solutions. In fact, it’s likely you (or your employer) chose to use another tool in large part because of the limitations of Excel. And Excel certainly has its limitations!

An Example of its Limitations

Take for example modeling expense reimbursement. It would be virtually impossible to model in Excel (or in any other tool for that matter) the almost infinite variations of expense reimbursement arrangements in retail, office, and industrial leases. Other solutions likewise come up short in this area, but come a lot closer than any Excel model ever could. So in this Excel-based All-in-One Underwriting Tool, I use an annual expense recovery by tenant method to calculate expense reimbursement rather than attempting to model every possible scenario. Less precise? Sure. Good enough? In my experience, the buy/sell decision/outcome does not hinge on what the exact amount of reimbursement income a property might throwoff is – a figure, by the way, no software can predict with 100% certainty.

So it really comes down to this. Excel is inexpensive, widely used, and offers customization on the fly but lacks the super-precision of its non-Excel counterparts. It’s up to you to perform your own cost-benefit analysis to decide which tool best suits your purpose.

Download the Model | Guide to Getting Started | Video Intro | Version Notes

About the Author: Born and raised in the Northwest United States, Spencer Burton has over 15 years of real estate investment and development experience. In his current position, Spencer assesses new investments for a $40bn real estate fund. He resides in Dallas, TX.