IRR Sensitivity Real Estate Template: Occupancy vs. Exit Cap vs. Hold Period

 Performing Internal Rate of Return (IRR) sensitivity analysis is an important part of real estate deal analysis. It involves examining the potential impact of changes in various assumptions on the IRR of a real estate investment deal. By performing IRR sensitivity analysis, investors can evaluate the risk associated with different scenarios and make informed investment decisions. I think occupancy and hold period are the most interesting variables to isolate.

$45.00 USD

After purchase, the template will be immediately available to download. It is also included in the real estate financial models bundle.

irr sensitivity template

Key Model Features:

  • Easy inputs for any type of real estate acquisition. Simply determine acquisition costs, debt financing (if applicable), starting rent / rent growth, starting OPEX and growth, exit month, exit cap rate. 
  • Perform analysis for up to a 20 year time frame
  • Monthly and annual cash flow view
  • 3 IRR Sensitivity Tables (Vacancy vs. Cap Rate; Vacancy vs. Hold Period; Exit Cap vs. Hold Period)
  • All inputs and monthly cash flow / sensitivity tables exist on one page.
  • DSCR displayed per month / year period.

Here are the steps to perform IRR sensitivity analysis for real estate deals using the template above:

  • Identify the key assumptions: The first step is to identify the key assumptions that impact the IRR of the real estate investment deal. These assumptions may include the purchase price, rent levels, vacancy rates, operating expenses, capital expenditures, and financing terms.
  • Determine the range of possible values: For each key assumption, determine the range of possible values. For example, if the rent level is a key assumption, determine the range of possible rent levels that may occur over the investment period.
  • Create scenarios: Create different scenarios by combining different values for each key assumption. For example, you may create a base case scenario, an optimistic scenario, and a pessimistic scenario.
  • Calculate IRR: Calculate the IRR for each scenario using a real estate financial model. Note, you can use the data table function as I have done in the template above, but be careful as they are a bit tricky if you've never built one before.
  • Analyze the results: Analyze the results of the IRR sensitivity analysis to determine how changes in each key assumption impact the IRR of the real estate investment deal. This analysis will help you identify the most critical assumptions and the potential risk associated with each scenario.
  • Make informed investment decisions: Finally, use the results of the IRR sensitivity analysis to make informed investment decisions. If the investment deal has a high IRR in the base case scenario, but a low IRR in the pessimistic scenario, it may be a riskier investment than initially thought. As such, you may want to reconsider the investment or adjust your investment strategy to mitigate the risks.
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