HELP- Question on reinvesting loan interest

To tackle this, here's a structured approach based on the most helpful WSO content:

1. Understand the Loan Terms: Since you've already built the 60-month amortization model, ensure you have the monthly interest payments clearly calculated. These payments will be the cash flows you reinvest.

2. Choose an Interest-Producing Vehicle: For simplicity, you can assume reinvestment in a fixed-income instrument like a bond or a money market fund. Use a reasonable annual interest rate (e.g., 3-5%) for the reinvestment vehicle.

3. Model the Reinvestment:

   • Create a separate schedule for the reinvestment.
   • Each month, take the interest payment from the loan and add it to the reinvestment vehicle.
   • Apply the reinvestment rate to calculate the interest earned on the reinvested amount.
   • Ensure the reinvestment compounds monthly (i.e., add the interest earned to the principal for the next month's calculation).

4. Project for 60 Months: Continue this process for the full 60 months. At the end of the period, sum up the total returns from the reinvestment vehicle.

5. Present the Results: Clearly show the cumulative returns from the reinvestment alongside the original loan amortization schedule. Highlight the additional value created through reinvestment.

6. Optional Enhancements:

   • If allowed, you could explore reinvesting in higher-yield instruments or varying the reinvestment rate over time.
   • Include sensitivity analysis to show how changes in the reinvestment rate impact the total returns.

This approach demonstrates your ability to think critically and apply financial modeling skills. Good luck with your project and the final round!

Sources: Development Model - Construction Loan + Mezz, Tutorial: How to Model a Real Estate Development Construction Loan, Multi-Family Acquisitions Excel Test, Looking for Multifamily model with Loan Sizing Constraints, Specialty Lending (GS/TPG) - Any insights?