The Basic Valuation Approaches in Real Estate Financial Modeling

1. The Basic Valuation Approaches in Real Estate Financial Modeling Real estate is one biggest contributor in the world's economy generating billions of dollars of revenue annually. For an individual interested in real estate financial modeling, he should be able to have a robust knowledge of the whole industry sector to be able to form a dependable model. Mastering the principles of the real estate industry coupled with solid foundation in finance will allow you to build reasonable assumptions and analysis. What is Valuation in Real Estate? In real estate investment, property valuation plays a vital role when buying or selling a property. Determining the value of the property allows the investor to compare its value to the asking price of the property. For the Seller, a property valuation very often forms the basis for his decision to sell the property and how to price it. However, valuation in real estate is far more complicated than it seems; it requires a more complicated analysis and sound knowledge to derive the property value. What makes it more complicated is that the market value of a property is influenced by several important factors such as the property’s location, the market conditions with tenants and available spaces, the property’s condition and need for renovations and other factors. This all needs to be considered when determining the value in real estate financial modeling. Valuation methods can be differentiated using three approaches: • reference to the similarity of sizes, amenities, and location of the property being assessed. An ideal comparative market analysis shall provide you with how much similar properties are selling, how long does it take to sell, and their sales prices to list price. This approach is recommended in cases of high similarity between properties selling under a similar market condition in the same period. Comparative Market Analysis is a valuation method that determines the property value with eFinancial Models Zurich, Switzerland 8000 info@efinancialmodels.com https://www.efinancialmodels.com/

2. The Basic Valuation Approaches in Real Estate Financial Modeling • to generate income from rents or leases. This method considers the property's value as the present value of projected cash flow expected to be generated from the property. In other words, this approach is based on the ability of the property to generate monthly income. Income Method is a valuation technique used when the property being assessed is intended • assessed property but instead the method values the property based on the cost of the building and the land. It is often used when the property is newly renovated or when having to identify the replacement value of a property given its current conditions. Cost Approach is the valuation technique that is not dependent on the market value of the Why should we use an Excel template for real estate valuation? As discussed above, real estate financial modelling is far complicated than it seems. All these three approaches will require you plenty of time to complete. Using a real estate financial modeling excel template, you will be at peace that your calculations are free from logical errors, and the valuations derived are consistent with your inputs thus, making an effective foundation for your analysis and decision-making. Conclusion: Real Estate Financial Modeling is more efficient in Excel Property valuation is in itself intricate and requires a deep understanding. The more factors needed in your computation, the harder an analysis could be. Thus, an excellent real estate financial modelling template in Excel could be of great advantage for decision-makers not only that it offers efficiency but also offers full transparency in all aspects of the real estate analysis. eFinancial Models Zurich, Switzerland 8000 info@efinancialmodels.com https://www.efinancialmodels.com/