What are the best practices for creating a financial model for a multifamily housing unit?

2 Collect the data

The next step is to collect the data you need to build your financial model. This includes the historical and projected income and expenses of the property, the market rents and vacancy rates, the capitalization rate and discount rate, the loan terms and amortization schedule, and the sales price and closing costs. You can obtain this data from various sources, such as the seller, the broker, the appraiser, the lender, the property manager, and the market research reports. You should also verify the accuracy and validity of the data, and adjust it if necessary.

3 Build the model

The third step is to build the model using a spreadsheet software, such as Excel or Google Sheets. You should start by creating a summary sheet that shows the key inputs, outputs, and assumptions of your model, such as the purchase price, the net operating income, the cash on cash return, and the internal rate of return. Then, you should create separate sheets for each component of your model, such as the income statement, the balance sheet, the cash flow statement, and the sensitivity analysis. You should also use formulas, functions, and references to link the sheets and ensure consistency and accuracy.

5 Present the model

The final step is to present the model to your intended audience, such as your partners, investors, lenders, or clients. You should prepare a clear and concise report that summarizes the main findings and conclusions of your model, as well as the underlying assumptions and methodologies. You should also include charts, graphs, tables, and visuals to illustrate your data and highlight the key points. You should also anticipate and address any questions or objections that your audience might have, and provide supporting evidence and rationale for your model.