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Back-of-the-napkin commercial real estate underwriting, in seconds.
5 Second Model · back-of-the-napkin underwriting
Value-Add Reposition
Buy it tired, renovate unit by unit, push rents, refinance or sell into the new income.
A value-add deal lives or dies on two numbers: what the renovation returns on the money you spend, and how fast you can turn the units. This model renovates unit by unit at a pace you set, charges downtime for every unit while it is out of service, and reports the return on renovation dollars — annual NOI lift divided by what you spent to get it. Under about 20% you are doing a great deal of work for a return you could have bought passively.
Levered IRR / Equity multiple
--
Cash flow by year, through the renovation and out the far side
Going in
| Purchase price | -- |
| Price per unit | -- |
| Going-in cap on in-place rents | -- |
| Renovation budget | -- |
| Closing costs | -- |
| Lease-up commissions | -- |
| Exterior or systems work | -- |
| All-in basis | -- |
| Loan proceeds | -- |
| Loan fee | -- |
| Equity required | -- |
Sources and uses
Deal metrics
Yield by year
Return on total cost as the deal stabilizes, against the cap rate you exit at
What the renovation buys
| In-place NOI | -- |
| Stabilized NOI | -- |
| NOI lift | -- |
| Return on renovation dollars | -- |
| Months to stabilize | -- |
| Yield on cost | -- |
| Development spread over exit cap | -- |
| Value created | -- |
Coming out
| Exit value | -- |
| Net proceeds after sale costs and payoff | -- |
| Unlevered IRR | -- |
| Net present value | -- |
Debt service coverage by year
Amortization schedule
Return sensitivity
Levered IRR across achieved renovated rent and exit cap. Your case is outlined.
Scenario analysis
Each column is the whole model re-run, not an adjustment to the base case.
What moves the return most
Points of IRR between the low and high case for each driver, ranked
Where this deal breaks
Solved against your own discount rate. Everything else held at your assumptions.
Common questions
- What return on renovation cost should I target?
- Above 20% is where the disruption starts paying for itself. Below 15%, buying a stabilized asset at market is usually the better use of the same capital and attention.
- Does renovation pace really matter that much?
- Yes. Every month a unit sits down is a month it earns nothing, and the pace slider moves IRR more than the budget slider does on most deals.
- How do I know the renovated rent is achievable?
- Comparable renovated units in the same submarket, not the same building. If the only evidence is a broker’s pro forma, run the sensitivity grid down two rent levels and see whether the deal still works.