Value Add

  • Anonymous
    # 2 years, 6 months ago

    Can you do a multi family value add through this model? Example; you purchase a multi family property and as leases expire, you renovate and release at a higher rent. upon stabilization you exit with a sale of the property.

    Spencer BurtonSpencer Burton
    # 2 years, 6 months ago

    Absolutely. The multifamily module (included in beta v0.4.0+) was built for just this scenario. On the MF-RR tab, you’ll notice two columns: an “In-place Occ. Unit Rent/Mo” column (column M) and a “Market Rent /Unit/Mo” column (column Q). You’ll also notice “Roll to Market” and “Roll to market month” columns (columns O and P). These four columns allow you to 1) set an in-place rent amount per unit and 2) set a market rent to roll your in-place rents to at some future date.

    Thus, for your scenario, set the in-place rent. Set “Roll to Market” to ‘Yes’. And then set market rent to the higher rent you expect to yield post-renovation. Then, model your renovation costs either using the development module (for significant redevelopment) or the ‘Other CapEx’ monthly cash flow line on the MF-RR tab.

    # 1 year, 5 months ago

    I have two questions on this.

    1. Using your solution above, wouldn’t that just set all units to market rent at the same time? I’m interested in doing what OP referred to… Renovate units as they turn over so something like 25% of the units per year. Is this possible in the model?

    2. If a sponsor plans to raise money for renovations as part of his acquisition cost, rather than use money from the cash flows, how would we reflect that in the model?

    Spencer BurtonSpencer Burton
    # 1 year, 4 months ago

    Sorry for the delay on responding here!

    To answer apalm’s questions:

    1) To do this, set ‘Roll to Market’ (column O of the MF-RR tab) to ‘In Month”, and then set the month you’d like that unit type to roll to market. I recognize this isn’t a perfect solution, since it rolls unit types to market at a month you specify rather than when each unit turns but it should get you pretty close to the same answer.

    2) Hmm.. This is a good question. In theory, the model is already doing this. Assuming you’re using the acquisition module (not the development module) to model the value-add scenario, 100% of the permanent loan funds in time zero. This means that any cash shortfall thereafter is covered by equity. You can see the total Equity contributions on the Equity CF tab (cell D13). Compare that to the Initial Equity contribution (Summary tab cell Q43) to understand how much additional equity is contributed after time zero. It’s true that the equity contributed is net of operating cash flow, but (if I’m thinking about this correctly) from an Equity IRR standpoint there shouldn’t be a difference.

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