Trending Content
| +81 | LP coming into deal at higher land basis. How to model returns to GP? | 18 | 47m | |
| +72 | Major Decisions | 13 | 20h | |
| +68 | Increasing RE Industry's Cash Compensation, Collectively | 43 | 1h | |
| +28 | Niche down to an operator or stay an allocator | 9 | 2d | |
| +24 | Breaking into CRE late 20s | 7 | 3d | |
| +22 | Thoughts on joining an early-stage REPE fund | 7 | 29m | |
| +22 | Self Storage ECRI | 9 | 2d | |
| +20 | Doom Loop or Creative Urban Reemergence? | 3 | 5d | |
| +18 | 3 Hour Condo/Rental Excel Test - What Can Be Expected | 2 | 3d | |
| +18 | How to get good at RE Modelling? | 14 | 1d |
Career Resources
Not particularly difficult if you can already model the cash flows a few years out along with a sale. Instead of cashing out 100% of the value, cash out however much of a loan you expect to get. Probably between 65% - 75% of the value at that time would be reasonable, depending on property type and location.
Obviously if your model is calculating IRR/NPV jus based on those five years of cash flows, then it won't be accurate considering there will be additional cash flows down the road. What you could do is calculate the NPV of the five years including the partial cash out, and then discount the future property-level cash flows beyond that and just add it on top.
cool, I did that.
However b/c of the short hold the unlevered IRR is negative.
By that logic - it should be negative with a sale instead of a refinance as well. You shouldn't be leaving that much value (time considered) on the table when you're cashing out ~70% and just discounting the remaining 30%.
This is probably a deal problem, and not a modeling problem. If your investment goal is to maximize IRR - selling earlier is almost always better. That's where the saying "you can't eat IRR" comes from.
The scenario of refi instead of a sale is generally a mark to market event that can get you cash immediately by obtaining the net proceeds from the new debt after paying off the original loan principal, without paying any capital gain taxes.
At the same time, you boss must have a bull view on the property itself in a longer period holding perspective that you would further gain in property appreciation.
Lastly. the refi scenario will face a new interest rate environment which generally is underwritten higher than the original loan. However, from an interest rate perspective, I would't think the rate five years later will be even lower, since we are already in the lowest level for too long.
Good perspective, thank you both. Here are some SB's, keep the advice coming.
Non repellat cupiditate sit repellat. Quos id sit fugit eius et nam.
Iste omnis quia dolores enim qui voluptatem et. Voluptatem aspernatur consequuntur velit quas. Debitis dolorem expedita maiores sed id. Sunt aut officia laborum aut. Iusto molestiae qui sit et aut eos. Non neque rem rerum ut. Commodi voluptas aut fugit consequatur.
Vitae occaecati expedita architecto at. Consequatur nulla ipsam et. Velit ullam quos consequuntur voluptatibus minus. Iure ipsam cumque voluptatem corporis non. Distinctio rerum at quasi natus et possimus sint vitae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...