Watch Me Build a 3-Tier Real Estate Equity Waterfall Model (Updated Aug 2024)
As I’ve mentioned in other Watch Me Build posts, one way to become a better real estate financial modeling professional, is to watch other professionals model. Thus, the more exposure you can get to other’s methods, the more adept a real estate professional you will become.
This is especially the case with modeling real estate equity waterfalls. While modeling up an apartment deal is generally an intuitive process, modeling partnership cash flows is not. So for this reason, and in response to numerous requests from our readers, I’ve recorded a video of me building an equity waterfall.
Are you an Accelerator Member? You might review the Modeling Partnership-Level Cash Flow course in the core curriculum to expand on what’s taught in this post. Not yet an Accelerator member? Consider joining the real estate financial modeling training program used by top real estate companies and elite universities to train the next generation of CRE professionals.
Real Estate Equity Waterfall Offerings on A.CRE
If you’ve found this post, you’re likely needing help building your own waterfall model. Most likely, you’re either a student working on a school project, a prospective employee needing to bone up your skills for a real estate technical interview, or a professional with a live deal you need help modeling. In addition to watching this video, and following along with the model (see download link below), you might also check out the other real estate equity waterfall resources we have here on A.CRE.
- Check out my real estate waterfall model with both IRR and Equity multiple hurdles
- Download Michael’s real estate JV waterfall model with catch-up option
- Find an adaptation of my waterfall model, but with monthly rather than annual periods
- Watch me incorporate scenario analysis with a waterfall
- Learn to partition the IRR to help partners understand what proportion of the yield is derived from appreciation vs income
- And much more
Setting Up The Watch Me Build Video
This video is not meant to teach you everything you need to know about real estate financial modeling and Excel. But if you’re like me and enjoy learning new methods for tackling a modeling problem, I think you’ll find a few tricks here you’ll be able to use.
I do my best to vocalize what I’m doing and why I’m doing it as a go from one formula to the next. There’s a slight error in the video during the second hurdle, where I accidentally turned off recording for about 30 seconds. You won’t miss much, as those 30 seconds only included me adding a few labels and linking to a couple of assumptions. But if you have questions, please let me know and I can amend this post with further explanation.
Below I’ve posted the completed model for you to download and recreate yourself if you’d like. The download link includes a zip file containing two workbooks. The first workbook is the fully completed model found in the video. The second is a blank workbook, but with formatting included, to use as you follow along with the video. As always, if you have any questions or comments, please don’t hesitate to reach out.
Other Resources
For those intrigued by the nuances of preferred return versus return of capital discussed in this article, the A.CRE AI Assistant can further enhance your understanding of this and other topics. It is a custom GPT we designed to streamline the navigation of real estate financial modeling and other A.CRE resources. By interacting with the A.CRE AI Assistant, you can dive deeper into related subjects, clarify doubts, or extend your learning without manually searching through extensive documentation.
Beyond our AI Assistant, we cover the nuances of Equity Waterfalls (i.e. Partnership Cash Flow Modeling) extensively in our A.CRE Accelerator Core and Advanced Curriculum. Not a member? Consider joining today!
Download the Template and Completed Files from this Watch Me Build
To make these files accessible to everyone, they are offered on a “Pay What You’re Able” basis with no minimum (enter $0 if you’d like) or maximum (your support helps keep the content coming – similar real estate training exercises sell for $100 – $300+). Just enter a price together with an email address to send the download link to, and then click ‘Continue’. If you have any questions about our “Pay What You’re Able” program or why we offer our models on this basis, please reach out to either Mike or Spencer.
Frequently Asked Questions about Building a 3-Tier Real Estate Equity Waterfall Model
Version Notes
v1.1
- Fixed an error in the ‘Sponsor Contribution’ row where the formula was pulling LP contribution for periods 1-5 rather than Sponsor contribution.
- Minor formatting improvements
