Why is It Important to Show Existing and Stabilized Financials in Multi-Family Underwriting?

 If you are investing in multi-family buildings / units then you've probably come across plenty of T-12s and done some financial analysis to figure out what the property is going to produce in cash flows based on expected occupancy, rent, and expenses over time and how that compares to the purchase price and any capex / renovations. One of the things you usually see in these models is the current rent rolls and pro forma, why is that?

Popular SaaS Products for Short-term Rental Real Estate Operators

 Those who purchase homes in order to rent them out for days or weeks at a time (using Airbnb/VRBO/or what have you) may use all kinds of software products to help them manage their properties. Let's get into some of the most useful.

Why Do Construction Companies Fail?

 Cash flow management and not getting enough work is the high level cause, but what leads to that?. There could be isolated one-time legal catastrophes that may also lead to failure or simply poor overall quality that leads to bad reputation in the construction world will not be helpful to success.

How to Negotiate Preferred Equity Terms: Real Estate Investment Tip

 Negotiating preferred equity terms requires careful consideration of various factors that can affect the interests of both the investor and the joint venture partner. Investors that choose to participate in this area of the equity stack (special financing) are looking for quick return of capital and safer, lower returns.

Marketplaces Succeed (or fail) Because of Trust and Reputation

 The reason marketplaces become successful is that the buyers and sellers trust that transactions can happen in good faith and to everyone's expectations. This is especially true for online marketplaces. People use Amazon because they know they are going to get what they paid for, in a timely manner, and there is recourse if things go wrong. Trust is what lets things happen in the long run.

Financial Modeling Using Customer Behavior Lifecycles

 I've done a few models that forecast revenues based on looking solely at new customer cohorts and their lifecycles. There are all kinds of ways to build a spreadsheet that does this and I'll talk about some techniques I've done below:

Update to Preferred Return Template - Return of Equity Option Added

 There is this tricky term called 'repayment of equity' in joint venture financial modeling. It is important because the total preferred return due will change depending on how the agreement works for equity basis reductions from profits when there is an LP with a preferred return.

Reasons Why a Self-Storage Business May Fail

 The high level answer is they run out of money and that can happen if their debt service outweighs their net operating income or their net operating income is negative. The real question is why is that likely to happen to a self-storage facility? If you are a real estate investor, you might have thought about getting exposure to this space as an LP or GP. If you are either, these things are important to consider.

Modeling Accounts Receivable in a 3-Statement Model

In a 3-statement financial model, accounts receivable can be calculated as a part of the balance sheet. Accounts receivable represents the amount of money that a company expects to receive from its customers for goods or services that it has sold on credit.

The Business of Being a Franchisor is All About Branding

 Sure you need a good system, good IP, good products, and a great process in general to succeed at being a franchisor. One of the most important things in this space is maintaining a strong brand. It gives a lot of network effects and helps one build momentum. This is especially true for new franchise businesses.

Financial Modeling Approach for a Public Golf Course

 I've built financial models for private and public golf courses (for clients and general templates for anyone to use). The main difference between these two is the revenue drivers. Public courses are more of a capacity-based model for walk-ins that pay a one-time course fee. Private courses are a different kind of capacity model.

Modeling Monthly Distributions vs Annual Distributions in a Joint Venture Cash Flow Waterfall

 I've done a lot of joint venture real estate models for clients and also built standalone templates. Some I've done based on monthly distributions and others on an annual period-only schedule. Let's talk about how the calculations vary.

Subscription Pricing Strategies for a Marketplace

 You might be starting a new marketplace business or attempting to introduce a subscription offering to your existing marketplace users where they pay some monthly fee or bi-annual / annual fee for better experience / perks / what have you. So, the question is, how do you price your subscription service?

More Hurdles, or Less Hurdles: What is Best in an IRR Hurdle Waterfall Structure?

 In finance, a cash flow waterfall refers to the distribution of cash flows from an investment or project among various parties, such as investors, sponsors, and lenders. The internal rate of return (IRR) cash flow waterfall is a specific type of cash flow distribution that allocates cash flows based on the IRR achieved by each party.

What Makes a Good Financial Dashboard Template?

 The driving force behind a dashboard template is usefulness. It should give a quick snapshot at the most important financial data / key metric data of the business in question. That may be different depending on the type of business the dashboard is for. 

Biggest Reason Assisted Living Facilities Fail

 Sometimes it can be healthy to look at why things fail rather than why they succeed. We are going to analyze an assisted living facility in a way that looks at common failures. In any business, sometimes the reason for failure is just that nobody wants your products or services anymore (Blockbuster) and that is not in your control, except that you can pivot, but a building that is designed to take care of old people is not likely to fall out of demand, so let's look at what could possibly go wrong.

Depreciation and all the Wild Accounting That Comes With It

 Most of the startup financial models that I built here on the site have depreciation factored in. I generally build logic for straight-line methodology only, but when you get deep down into the nuance and Accounting for depreciation, things get wild.

Best Location to Start a Laundromat

A laundromat is one of the more popular businesses to startup as it is fairly simple to understand. You need to either build up a new location or buy one, get the equipment setup, and then let the business run while keeping up with the maintenance of the machines and the property. One of the most important things in this industry is location. Good traffic means high utilizations and a better ROI.

Key Metrics for Hotel Financial Modeling

 I've done a few hotel financial models for clients as well as built a custom development/acquisition spreadsheet from scratch. Below we are going to talk about key metrics of the hotel industry and the logic / calculations.

What is Working Capital?

 Anyone running a business needs a good sense of what working capital is and how to manage it properly. This is especially true for startups that are getting some revenue, but have a lot of moving parts for how cash comes in and cash goes out. If the settings are not right, you may run out of working capital and then require a credit facility / loans or other high costs of capital (much higher than simply using the revenue you earn to pay for your expenses).

Examples of Alternative Lending

 Traditional lending is going to a bank and getting a mortgage where you simply pay principal and interest each period based on an interest rate, total term, and payments per year or getting an auto loan with regular p+i repayments over 5 to 7 years. However, there are some alternative lending options that have come up over the years so let's get into it.

Consultants Can Use Excel to Track Billable Time

 Ok, so I have actually used the same time tracker that I built back in 2017 for myself for the past 6 years. It is simple and I can do all the time tracking I need for all my clients. It works awesome and if you are a single person user, this solution is great and everyone has Excel so it is widely available to most people without any ongoing fees. I also like this solution better than web-based solutions that I've tried.

Preferred Return Effect on Total Return on Investment

 This is a pretty in-depth idea that has a lot of moving parts / components. I will try to keep it high level and as understandable as possible. Basically, the idea is to take a look at how the existence of a preferred return can impact investors and operators (LPs / GPs) as opposed to not having a preferred return that is due and simply splitting the cash flows at a defined rate.

Legal Structure of a Preferred Return Joint Venture vs a Model

 First and foremost, I am not an attorney of any kind and you should consult one before drafting up an agreement. What I am talking about below is just some rules of thumb to consider when you go to explain what you want to someone that is used to drafting joint venture agreements where there is a preferred return in place.

Preferred Equity Waterfall Modeling Considerations

 Being able to model an idea requires a really good understanding of what it is being modeled. With preferred equity, we must understand a few different things in order to even attempt to build something that is generally useful to LPs and/or GPs as they try to figure out a feasible deal structure for their joint venture.

Car Wash Economics and Modeling Tips

 Car wash modeling can be approached using a variety of methods, but here are some steps that could be taken to create a basic model:

Financial Modeling Techniques for Equipment Rental Business

 I've done two main equipment rental model templates and a few custom builds for clients. I will go through all the various styles I have seen for creating financial forecasts / cash flow forecasts for this type of business below as well as some techniques I have not tried before.

Things to Consider When Financial Forecasting for an Assisted Living Facility

 Financial forecasting for an assisted living facility requires a comprehensive analysis of various aspects of the business. Some of the essential aspects to consider are:

Subscription Modeling Challenges: Rolling Revenue Forecast

 When you have a subscription-based business, one of the more difficult tasks to do is create an ongoing revenue forecast that consistently takes into account all existing subscribers, future subscribers, and the resulting retention of those cohorts. It is important to do for general financial planning, expansion, capex spending, and operational decision-making as well as strategizing.

When is the Right Time for an Interest Rate Swap?

 Bottom line, nobody knows the future so this is speculation to some degree. There are a few different scenarios that one may want to jump into a swap, but it really is dependent on your expectations of future interest rates or the need to hedge. Apple has done these with all their cash reserves.

Seller Financing and the Real Estate Industry

 Seller financing, also known as owner financing, is a method of buying or selling a property in which the seller provides financing to the buyer. While seller financing can be used in any industry that involves the sale of a property, it is most commonly used in the real estate industry.

Ethics and the Real Estate Brokerage Business

 Real estate brokerage businesses must uphold ethical considerations in their day-to-day operations to maintain their reputation and trust among clients. Here are a few ethical considerations for real estate brokerage businesses:

How to Calculate Profit per Job in a Construction Company

 Calculating profit per job in a construction company involves several steps. Here's a general guide on how to do it:

Cash Flow Waterfalls and Joint Ventures: High Level Overview

When starting a joint venture, it is important to consider the use of a cash flow waterfall. A cash
flow waterfall is a framework that outlines the order in which cash flows are distributed among the
different stakeholders in a project, i.e., a cash flow waterfall is a method of prioritizing how cash flows
are distributed or allocated in a structured manner. In a joint venture, the cash flow waterfall can help
to ensure that all parties are treated fairly and that there is a clear understanding of how profits will be

General Types of REITs and Their Risk Profile

 Real Estate Investment Trusts (REITs) are a popular way for investors to gain exposure to the real estate market without owning physical property. Here are some common types of REITs and their risk profiles:

Template with IRR Hurdles and a GP Catch-up Option

 I've been asked enough about adding this feature that it was time to do a template that specifically offered the option to implement a preferred return (IRR) catch-up hurdle for the GP / sponsor of a joint venture. This template will do all the calculation work for you. The catch-up provision kicks in after the LP has achieved their first IRR hurdle, so the order is: LP 1st hurdle, then the catch-up, then the remaining hurdles kick in per available cash flow. If there is no catch-up, then simply enter 0% for that input cell.

Tips for Starting a Successful Used Car Dealership

 Starting any business required good planning. You don't want to run out of cash before you ever get started and it is important to take calculated risks and weigh options for inventory targeting as well as sales team planning, management, pricing, and more.

Marketplace with Subscription Option - 5 Year Financial Model

 This template combines the best logic of a subscription business and a marketplace business. You are getting high flexibility with this financial model. The main purpose is to create a comprehensive forecast for a business that runs a marketplace and has an option for up to 3 subscription tiers. You can use this independently as well if you just have a subscription business or just have a marketplace business by zeroing out the assumptions for whichever component you don't want to use.

What is Multi-family Real Estate?

 Multi-family real estate refers to residential properties that are designed and built to house multiple households, typically in the form of apartments, condominiums, townhouses, or other types of multi-unit buildings. These properties are often owned and managed by a single entity, such as a real estate investment trust (REIT), a private equity firm, or a property management company.

Role of Debt in Multi-family Real Estate Investing

 Debt plays a crucial role in multi-family real estate investing, as it can significantly impact the returns on an investment. Debt is typically used to finance a portion of the acquisition or development costs of a property, and it can come in various forms, such as traditional mortgages, mezzanine financing, and bridge loans. Here are some ways in which debt impacts multi-family real estate investing:

Best Practices in Job Costing

 Job costing is important. Any general contractor should have a good system to estimate what jobs will cost, what their expected margins will be, and track actual results to compare how they are doing against these targets. If you don't want to run out of money, it is important to do this well.

Does Your Car Wash Business Have These Features?

 The car wash industry is constantly evolving, and there are several new trends that are shaping the industry. Some of the most notable trends in the car wash industry include:

What is "Industry 4.0" in Manufacturing?

 Plain and simple, the term "Industry 4.0" simply means the fourth industrial revolution. It refers to the integration of advanced technologies into the manufacturing industry to create smart factories that are more efficient, productive, and cost-effective. It is characterized by the use of cyber-physical systems (CPS), the Internet of Things (IoT), and other emerging technologies to enable machine-to-machine communication and data exchange.

Different Types of Franchise Business Models

There are different franchise business models, each with its own pros and cons. Here are some of the most common franchise business models:

Average IRR of Mixed-Use Real Estate Deals

 The average Internal Rate of Return (IRR) in mixed real estate can vary widely depending on a variety of factors, including the specific project, location, financing structure, and overall market conditions.

Financial Modeling Techniques for the Product + Subscription Business

 Creating a financial model for selling a product that has an optional add-on subscription service requires careful consideration of several factors, including the price points of the product and the subscription service, the target market, and the estimated customer conversion rates.

Origins of Preferred Equity

 Ok, so from my perspective, the use of preferred equity is often involved in joint ventures within the oil and gas or real estate deal industries. It can be used for all sorts of businesses though and really just represents a certain risk / reward profile for investors and operators. I thought it would be interested to give some history on how this type of equity came to be and what was the very first deal to use this finance structure.

General Economics of Recycling Businesses

 Recycling businesses play an important role in reducing waste and conserving natural resources. The economics of recycling businesses can be complex, and can vary depending on a number of factors such as the type of materials being recycled, the market demand for those materials, the cost of collecting and processing the materials, and the competition in the industry.

Sustainable Products You Might Want to Build a Manufacturing Plant Around

 If you are thinking about starting a manufacturing plant, the investment is high and it takes a lot of operational know-how. Also, you want to be sure whatever you are able to manufacturer is going to have long-term demand. There are many products that can be good long-term options to build a manufacturing plant for, depending on a number of factors such as market demand, availability of resources, and potential for scalability.

How to Determine Safety Stock When Inventory Forecasting

 There is a whole process to performing good inventory forecasting, cash requirement planning, and general management of the entire cash conversion cycle of an inventory reliant business. Below are some general things to consider when defining a single step of that process. That would be the safety stock.

General Steps to Calculate Inventory Reordering Requirements for Your Business

 First, let me say that the inventory forecasting Excel templates I have built are all in high demand since I started building them.

How Changing Interest Rates Impact Banks and Lending

 The Federal Reserve (the Fed) is the central bank of the United States, and one of its primary responsibilities is to set monetary policy, which includes setting the federal funds rate—the interest rate that banks charge each other for overnight loans. Here are some interesting things about how the Fed's interest rate decisions can affect bank profits:

Best Visualizations for a Sales Pipeline Tracker

 Visualizations can be tricky. If you want your sales manager or management in general to easily view a dashboard that displays exactly what the sales pipeline looks like at any given moment, you've really got to think about the layout, what numbers to display, what columns to use for your database, and what kind of charts / visuals to show.

What are the Downsides of Preferred Equity in Real Estate

 You see these kinds of deals in real estate a lot because of the steady and predictable cash flows expected therein. However, preferred equity does have its risks and drawbacks. 

Mobile Home Park Investing: Bull Case

Here we are taking a look at the bull case for buying mobile home parks (MHPs). Investing in these kinds of real estate syndication deals or being an owner / operator can check all the right boxes for certain individuals.

What is a Marketplace?

 At the very root, a marketplace is simply a place where things are transacted. Usually, when this term is referenced it means a place where buyers and sellers can connect and exchange goods or services. There are offline and online marketplaces. You will find them in all shapes and sizes with all sorts of structures.

Laundromat Financial Forecasting Model - Excel Template

 If you want to start a laundromat business, some things you probably want to understand are the required initial investments and resulting profits you can make over time. Additionally, you may want to value the business at some point in the future in order to complete a correct DCF Analysis. This template makes all of that possible and I walk you through how to fill out all forecasting inputs in the video below.

Some Approaches to Volume Discount Pricing

 Volume discounting is a pricing strategy used by businesses to encourage customers to buy more by offering discounts for larger quantities. Here are some common methods for volume discounting:

Car Wash Valuation Considerations

 Car wash businesses are generally valued based on multiples of earnings or revenue. Here are some common valuation multiples and factors to consider when valuing a car wash business:

Starting a Construction Business is Like an Orchestra

Getting into the construction business can be risky and take a lot of investment in equipment, payroll, labor, and general operating expenses. Cash flow is probably one of the most important things to manage and going into something like that without a good mental model of your business model and strategy is a mistake. You should have a pattern / template / game plan for the types of jobs you want to do and the resulting costs / benefits. Let's talk more about the business.

What is the Right Franchise for You?

 Let's say you want to take advantage of a strong pre-existing brand that has all the mechanics worked out for process and training. This would mean you want to join an established franchise. There are lots of things to consider before jumping into the game, so we will go through those below.

Strategies for Expanding a Mobile Home Park

 In the past, we've look at strategies for investing in mobile home parks and I have built a highly comprehensive financial model for mobile home parks. Here today, the goal is to evaluate possible strategies to look into for expanding an existing mobile home park. This is a great way to increase revenues and the property valuation.

General Valuation Methods for a Real Estate Brokerage

 I have built quite a few real estate models. Most have to do with underwriting property and driving down to NOI, exit value, DCF Analysis, and cash-on-cash return after IRR hurdle waterfalls. However, I have also done a real estate brokerage feasibility model that looks at the operational side and drives fee revenues based on volume of properties closed over time / all the commission splits, has operating expense assumptions...…and a valuation at exit. Here today I'm going to talk about some general rules of thumb when valuing a real estate brokerage.

Spreadsheets Useful for Used Car Dealerships

 A spreadsheet that could be helpful for a used car dealership industry could include the following elements:

Employee Scheduling Management Tactics

 There are several ways to keep track of employee schedules by week, and the best method may depend on your specific needs and preferences. Here are some options to consider:

How to Determine Pricing for Your Equipment Rental Business

 Determining pricing for your equipment rental company for different machinery can be a challenging task. There are all kinds of strategies, but generally you need to understand your costs and charge at least enough to cover that, then raise prices or become more efficient by lowering costs or both. This business is a bit like real estate investing where there is an initial large purchase, ongoing costs, and ongoing occupancy that drives rental revenues.

How to Structure Your Lending Businesses Loan Offerings

 Determining the best loan configuration for a general lending business will depend on several factors, such as the type of loans being offered, the target market, and the financial goals of the lending business. However, here are some general tips that can help in creating an effective loan configuration:

Pros and Cons of Starting a Used Car Dealership

Starting a used car dealership may not have been the dream you had growing up, but it is a steady business that makes healthy margins. Sometimes, the average profit on a used car is more than what a dealership gets from selling a brand new car. This is because of the dealership getting favorable acquisition price points.

Average Margins in the Short-term Rental Business Compared to Long-term Rental Properties

 The average margins of the short-term rental industry can vary widely depending on several factors, including the location of the rental, the type of property, the level of competition, and the cost of operations. All of the links in this article will take you to relevant financial models and templates specific to real estate.

European vs American IRR Hurdle Waterfall Structures

 European-style and American-style internal rate of return (IRR) hurdle waterfalls are two different methods of calculating the distribution of profits in a private equity or real estate fund.

Who Typically Invests in Preferred Equity Deals?

 Preferred equity is typically offered to institutional investors, such as private equity firms, hedge funds, and venture capital funds, as well as to high net worth individuals. 

Pros and Cons of Starting an Equipment Rental Business

 I've done lots of financial modeling and forecasting templates for various equipment rental businesses. The thought for this is pure cash flow. You invest cash in equipment, and then rent it out. Similar to the real estate industry in a sense, except you don't have as much operating expenses.

Cheapest SaaS Companies to Run

You are going to see a lot of freemium models below. Usually, if your SaaS value proposition is cheap to maintain, it is worth it to give customers a viable taste that is free while offering upgrade paid options.

Open-pit Mining Finance

One of the first financial models I built was a forecasting template for open-pit mining operators. It shows a basic initial investment schedule, assumptions for mining productivity / pricing of minerals / gems / metals and then provides a DCF Analysis of the opportunity. If you plan on starting or getting into the mining business, here are some more things you should take into account on the finance end of things:

The Right Conditions for a Preferred Equity Joint Venture

 If you invest in real estate or other businesses that produce steady cash flows, it is more common to see preferred equity enter the stack. This could be hard or soft, but the high level understanding you need to have of it is that the investors have a claim on their equity repayment and usually a preferred return is due before cash is split elsewhere to the GP.

Some Considerations When Starting a Manufacturing Plant

 Starting a manufacturing company can be a complex process, but here are some general steps to consider:

Repaying Multiple Loans - Some Strategies

According to Bankrate, the average American holds over $96,000 of debt (per 2021 data). That is often across multiple loans and varying interest rates as well as fixed / variable terms. There may also be balloon payments involved (more common in real estate transactions). Let's talk about a few ways to manage debt as an average person.

Also, you can use this multiple loan repayment calculator to test how increasing your payments can save on interest over time. This template works well when you have many loans of different interest rates and different remaining balances.

Marketplace Economic Modeling Approaches

 I've done a few client specific network / marketplace financial modeling as well as a few templates for this industry. There are a lot of ways to create a financial forecast for a place that facilitates commerce between two or more parties. Note, some things just can't be simulated that well in Excel or Google Sheets, but some can.

How Interest Rate Swaps are Used

 Interest rate swaps are a financial instrument that allows two parties to exchange cash flows based on different interest rates. Here are some interesting ways to utilize interest rate swaps:

Lending Business Compliance and Regulation Considerations

 If you are starting a lending business, there are some regulations to consider. It will vary depending on what jurisdictions are being operated in, but pretty much every place will have some hoops that must be followed.

Examples of Volume Pricing in Various Industries

 Volume pricing strategies are pricing tactics that offer discounts to customers who purchase larger quantities of a product or service. Here are some interesting things about volume pricing strategies for various businesses:

Sales Tracker - Printable Template

 This is a very easy-to-use sales tracker that was made for basically any business that wants to keep track of their monthly and YTD sales as well as print out clean historical sales reports. I build it in Excel and a Google Sheets version is included that is also printable. 

Seasonality in Financial Models

  I have done many custom jobs and general templates where seasonality was a major factor in building the financial model. Including such logic helps to show what would happen over time to revenues, expenses and cash flows when accounting for big fluxes over the course of a year that are common to a given industry.

Advantages and Disadvantages of Starting a Mobile App Business

 Mobile apps are fun, worldwide, and can lead to instant cash generation. At scale, these kinds of businesses work by expected conversions. There is a model to figure out ad spend, cost to acquire a customer, and average value of that customer over time. If the numbers make sense with a trial run, some of these companies will then spend 100s of millions to billions in marketing to make a slight margin.