## Places Of Interest

### Real Estate Template for Rent Growth Formulas

One of the most common pieces of logic in all the real estate financial models I've built for customers and as templates has some sort of rent growth logic. This template gives you all the different styles and methodologies that I've used.

Check out all real estate models: https://www.smarthelping.com/p/real-estate.html

Here are the three main styles I see most often:

Style 1: Determine top line potential year 1 pro forma rent (before vacancies / losses) and simply increase that by a defined percentage each year. This is the most straight forward and used to underwrite / analyze deals quickly without getting into monthly cash flows.

Style 2: Define starting monthly rent (month 1 weighted average potential rent per unit) and then apply an annual growth rate in a table (years on the left, annual growth rate in next column and resulting compounded monthly rent in each year). Simply run a formula to lookup the monthly rent in that table for each year. In this method, the rents are not increasing each month, but rather will increase one time every 12 months based on the annual growth rate. You can then apply that monthly rent amount to the occupied units per month.

There is another option for style 2 that I did in the video, but didn't leave it in the template. You could take the starting monthly rent and then apply a growth factor rate to that amount each year. The tricky thing with this is it would only work when you have a single annual growth rate and it would not work with varying annual rent growth rates. I did do some clever extensive logic in the Mobile Home Park real estate model that did use this method, but was able to have one growth rate for the first few years and a second stabilized growth rate after. It was too complex to put that in the template. I put a basic calculation for applying a growth factor to starting rents in the bottom of the template.

Style 3: In this method, you can increase the rent each month based on an annual growth rate that can vary each year. The model simply converts the annual growth rate into the monthly compounded growth rate that results in that annual rate being achieved when applied to 12 periods. This gets you to the same number as style 2, except you see granulation during the year of each. This is only viable if rents are flexible and can increase month-to-month. I have only seen this methodology used in self-storage modeling

Note, as a general piece of logic I went in and put a dynamic calculation into the month number so you can see how to count time if the rent doesn't start until some point in the future relative to the start month of the forecast. For example, if you need to show construction over 12 or 18 months or whatever time frame and not start rents until some arbitrary month in the future. Also, this would apply if you want to show various units / unit types / or separate properties that come online over time and have different ranges for when their 12-month periods begin.

You may also like this rental property scaling model for up to 100 properties.