Template of investment agreement, If you have built or bought a investment template in Excel or other spreadsheet program, there are good and bad ways to model the pro forma financials of a potential property investment. A professional-level investor will typically do the analysis process thoroughly and with the right data to ensure the final result is a profit rather than a loss. Keep reading to find out more about the many dos and don’ts of working with an Excel property investing template.
First off, do not jump into your modeling job without collecting all the necessary data beforehand. You may be under significant time pressure and the seller may not want to share critical performance data with you, but it is very important to have the appropriate historic revenue, expense, tax, vacancy, and insurance numbers handy before you start modeling. Do whatever it takes to get the information you need for your investment template and create an accurate choice.
Next, do make sure that you model cash flows as far into the future as possible, or at least till you believe the property will be sold. If you have a 5 year investment time horizon, you should model at least 7-10 years of money flows in the event the property turns out to be a fantastic income producer or there is a problem selling it at a reasonable price down the road.
Don’t 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 expenses, etc.. Try to determine how sensitive the net income is to different input variables. You can even automate the model via a simple simulation routine to run thousands of different scenarios with incremental increases and decreases for various important inputs. By testing the model and generating multiple possible outcomes, you’ll have a much better comprehension of the potential risks and rewards of this investment.
In the end, you should always do top quality data and analysis function and trust that your financial model to direct the investment choices and purchase price negotiation. If done properly, your analysis may have discovered significant potential opportunity to manage the property more effectively. Check it out the sample of template of investment agreement below at the attachment page.