What is the point of Real Estate Financial Modeling?

Let’s start with a brief overview of what this means:

Financial modeling is the process of estimating the financial performance of a project or business by taking into account all relevant factors, growth and risk assumptions, and interpreting their impact. It enables the user to acquire a concise knowledge of all the variables involved in financial forecasting.

Understanding how an asset is expected to perform is paramount to achieving the desired outcome from a particular investment.  By utilizing a financial modeling solution, the variables that ultimately affect value, such as potential revenue streams, operating expenses, debt assumptions, construction costs, expected capital expenses related to leasing efforts, and anticipated vacancy, just to name a few, are clearly identified for review and analysis.   Each of these components plays a part in determining value so understanding the effects of variations to these assumptions is critical.

Financial modeling solutions such as Valere guide a user to carefully consider the assumptions required to build a picture of an asset’s performance, through cash flow analysis, and ultimately value.  The ability to perform sensitivity analysis by quickly modifying specific assumptions while providing a side-by-side comparison yields meaningful information in the decision-making process.

Essentially, the point of real estate financial modeling is to document and understand the intended roadmap for the overall performance of an asset and identify areas of weakness or opportunity to enhance the overall value.  Without this roadmap, you’d be lost!  Solutions such as Valere provide ease and visibility to the otherwise manual or complex modeling process.

Author:

Lynn Peters
Vice President, Global Operations
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