Simple investment agreement template, In case you have built or purchased a investment template in Excel or other spreadsheet program, there are good and bad ways to model the pro forma financials of a prospective property investment. A professional-level investor will typically perform the analysis process thoroughly and with the right data to ensure the final result is a profit rather than a loss. Read on to find out more about the various dos and don’ts of working with an Excel property investing template.
First off, don’t jump into your modeling project without gathering all the necessary data ahead. You may be under significant time pressure and the seller may not want to share critical performance data with you, but it is extremely important to have the appropriate historic revenue, expense, tax, vacancy, and insurance amounts handy before you begin modeling. Do whatever it takes to find the information you need for your investment template and make an accurate decision.
For those who have a 5 year investment time horizon, you should model at least 7-10 years of cash flows in case the property turns out to be a fantastic income producer or there is a problem selling it at an affordable price down the road.
Do not assume the first numbers you plug into your investment template will lead to the most likely investment outcome. Test at least 10-15 scenarios, even more, varying the funding rates, cash investment, capitalization rates, vacancy, rental growth rate, rehab costs, tax assumptions, marketing costs, etc.. Try to determine how sensitive the net income is to various input variables. You can even automate the model via a simple simulation routine to run thousands of different situations with incremental increases and decreases for various key inputs. By analyzing the model and producing multiple possible outcomes, you will have a much better comprehension of the possible risks and rewards of the investment.
In the long run, you must always do top quality data and analysis work and trust that your financial model to direct the investment choices and purchase price negotiation. If done correctly, your investigation may have uncovered significant potential opportunity to manage the house more effectively. Proper financial modeling leads to a significant information advantage over the seller, thereby generating the potential for more income and profits. Have a look the sample of simple investment agreement template below at the attachment page.