Commercial Multi-Family Investors: How Important is Excel Modeling?

Question

For those who are investing in multi-family transactions of 10+ units, how important is it to know how to create a pro forma in excel? I assume that investors want to see this, just trying to determine if I should invest in some classes to learn how to complete this.

Evan Polaski · Answer

@Joel Polanco, what is your proposed alternative?  If the question is Excel, specifically, then there are other modeling packages you can use, but most are overkill (I am thinking Argus) and honestly more complicated.

If you are talking just creating a pro forma, how do you know it is a good investment if you aren't sure how to make a pro forma?  How do you even know if it is and ever will create positive cashflow.

At a very high level, as others noted, there are many ways you can create a pro forma.  A class will teach you basic skills of how to use excel, how to create and input formulas that can carry over throughout cells and sheets, how to create pivot tables and sensitivity analyses, so you don't have to manually redo your work time and time again.  It won't teach you whether a 3% rent growth rate or 6% rent growth rate is a better assumption for your property, or what the market rents for renovated units are, or what a stabilized/exit cap rate assumption should be.

If you don't know excel, your options are learn it or hire it out.  I always fall somewhere in the middle. I want a certainly level of understanding in anything I am using.  But I am no expert in Excel.  I no longer want to spend hours root tracing my formula errors.  I would rather have someone else do that, and I know enough to tweak as needed and confirm things are flowing through correctly.

John K. · Answer

Completing pro formas is important, however I don't think taking a class is necessary. There is no one right way to do it, and there are plenty of tutorials on Youtube that teach the basics that can be easily replicated in Google Sheets.

Mordy Chaimovitz · Answer

Do you have a different way of analyzing the numbers on a property to see if it is a good investment?

I have a spread sheet that i created  for underwriting 10 plus units that I am happy to share.

It doesnt seem that I can put it in this post, but feel free to DM me, and I would be happy to send it to you.

Mason Weiss · Answer

IT is important to understand, less important to complete yourself. If you are looking to buy, almost all sellers of this property type will already have a pro forma built.

However, you need to be able to understand the pro form so you can conduct proper due diligence and not rely on the seller's numbers.

Commercial Multi-Family Investors: How Important is Excel Modeling?

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