Real Estate Excel Functions Tutorial

Date Created: 12/5/2005

Date Edited: 2/4/2006
Created By: Nate Gundrum

The following spreadsheet was developed for use in teaching students in Real Estate 306 at the University of Wisconsin - Mad
Estate Excel functions. The "Time Value of Money" tab will make use of time value of money functions such as PV, FV, PMT,
NPER. The "Debt Financing" tab will contain an amortization table. The "NPV & IRR" tab contains a series of cash inflows an
and uses the NPV and IRR functions to determine net present value and internal rate of return for a particular investment. The
"Miscellaneous Functions" tab makes use of the Sum, Average, Count, Maximum and Minimum functions. The "Pro Forma" ta
contain the template for a pro forma with debt financing along with a number of assumptions. The user will complete the pro fo
based on the asumptions provided and will make use of the IRR and NPV functions.
at the University of Wisconsin - Madison Real
ey functions such as PV, FV, PMT, RATE and
contains a series of cash inflows and outflows
urn for a particular investment. The
mum functions. The "Pro Forma" tab will
s. The user will complete the pro forma
TIME VALUE OF MONEY

1) Solving for Future Value (FV) 3) Solving for Number of Periods (NPER)

Assumptions: Assumptions:
PV $100.00 FV ($1,000.00)
I/Yr 8% PV $100.00
N (Years) 10 I/Yr 8%
Annual Compounding Annual Compounding

FV N (Years)
Solution: $215.89 Solution: 29.92

Change the following assumptions: Change the following assumptions:

Monthly Compounding Monthly Compounding

FV N (Months)
Solution: $221.96 Solution: 346.54

2) Solving for Present Value (PV) 4) Solving for Interest Rate (RATE)

Assumptions: Assumptions:
PMT $100.00 PMT ($100.00)
I/Yr 8% PV $700.00
N (Years) 10 N (Years) 10
Annual Payments Annual Payments
Annual Compounding Annual Compounding

PV I/Yr
Solution: $671.01 Solution: 7.07%

Change the following assumptions: Change the following assumptions:

Monthly Payments PV $8,000.00
Monthly Compounding Monthly Compounding

PV I/Month
Solution: $8,242.15 Solution: 0.72%
DEBT FINANCING

Loan Terms: Property-Specific Information:

Loan-to-Value 80% Purchase Price
Amortization Period (Years) 15 Holding Period (Years)
Interest Rate 5.0%
Monthly Compounding

Calculate Monthly Debt Service:

Amortization Table
Year 1 2
Beginning Balance
Annual Debt Service
Annual Amortization (Principal)
Interest Expense
Ending Balance (OLB)

Solution:
Amortization Table
Year 1 2
Beginning Balance $8,800,000 $8,395,741
Annual Debt Service ($835,078) ($835,078)
Annual Amortization (Principal) ($404,259) ($424,942)
Interest Expense ($430,819) ($410,137)
Ending Balance (OLB) ($8,395,741) ($7,970,800)
 $11,000,000
4

ble
3 4

ble
3 4
$7,970,800 $7,524,117
($835,078) ($835,078)
($446,682) ($469,535)
($388,396) ($365,543)
($7,524,117) ($7,054,582)
NET PRESENT VALUE (NPV) AND INTERNAL RATE OF RETURN (IRR)

Land Cost $1,000,000

Hard and Soft Costs $10,000,000

Cash Flows from Operations

Year 1 $750,000
Year 2 $800,000
Year 3 $850,000
Year 4 $900,000
Year 5 $950,000

Cash Flow from Reversion (end Year 5) $12,000,000

Discount Rate 8%

Cash Flows
Year 0 1 2
Cash Flows

Net Present Value (NPV) Remember: Make the investment if NPV>0. Do not make th
Internal Rate of Return (IRR) Remember: Make the investment if IRR>Req'd Rate of Retu

Solution:
Cash Flows
Year 0 1 2
Cash Flows (11,000,000) 750,000 800,000

Net Present Value (NPV) $530,152

Internal Rate of Return (IRR) 9.16%
 3 4 5

vestment if NPV>0. Do not make the investment if NPV<0.

vestment if IRR>Req'd Rate of Return. Do not make the investment if IRR<Req'd Rate of Return.

3 4 5
850,000 900,000 12,950,000
MISCELLANEOUS FUNCTIONS

Sum Average Count Maximum

0 0 0 0
1 1 1 1
2 2 2 2
3 3 3 3
4 4 4 4
5 5 5 5
6 6 6 6
7 7 7 7
8 8 8 8
9 9 9 9
10 10 10 10

Solutions: 55 5 11 10
Minimum
0
1
2
3
4
5
6
7
8
9
10

0
PRO FORMA

Assumptions:
Two-Bedroom Units 80
Three-Bedroom Units 20
Two-Bedroom Monthly Rent $1,400.00
Three-Bedroom Monthly Rent $1,500.00
Parking Spaces 40
Parking Monthly Rent $100.00
Annual Inflation of Rents and Parking Charge 4.0%
Vacancy and Collection Loss (% of PGI) 5.0%
Parking and Vacancy Allowance 6.0%
Purchase Price 11,000,000
Assessed Value 10,000,000
Land Value as % of the Total Value 18.0%
Annual Growth of Assessed Value (Year 2-5) 3.0%
Property Tax Mill Rate 25
Other Operating Expenses (% of EGI) 25.0%
Planned Holding Period (Years) 4
Terminal Cap Rate (Applied to 5th-year NOI) 9.25%
Selling Cost (% of Gross Sales Price) 5.0%
Number of Years for Calculating Depreciation 27.5
Capital Gain (appreciation) Tax Rate 15.0%
Depreciation Recapture Tax Rate 25.0%
Income Tax Rate 36.0%
After-tax Required Rate of Return 12.0%

YEARLY CASH FLOW FROM OPERATIONS

Year
1 2 3
Potential Gross Income
(Less Vacancy & Collection Loss)
Potential Other Income
(Less Other Income Vacancy)
Effective Gross Income
Memo: Assessed Value
(Less Property Taxes)
(Less Other Operating Expenses)
Net Operating Income
(Less Depreciation)
(Less Interest Expense)
Memo: Taxable Income
Income Taxes

Net Operating Income

(Less Annual Debt Service)
Before Tax Cash Flow
(Less Income Taxes)
After Tax Cash Flow
Solution:
YEARLY CASH FLOW FROM OPERATIONS
Year
1 2 3
Potential Gross Income $1,704,000 $1,772,160 $1,843,046
(Less Vacancy & Collection Loss) ($85,200) ($88,608) ($92,152)
Potential Other Income $48,000 $49,920 $51,917
(Less Other Income Vacancy) ($2,880) ($2,995) ($3,115)
Effective Gross Income $1,663,920 $1,730,477 $1,799,696
Memo: Assessed Value $10,000,000 $10,300,000 $10,609,000
(Less Property Taxes) ($250,000) ($257,500) ($265,225)
(Less Other Operating Expenses) ($415,980) ($432,619) ($449,924)
Net Operating Income $997,940 $1,040,358 $1,084,547
(Less Depreciation) ($328,000) ($328,000) ($328,000)
(Less Interest Expense) ($430,819) ($410,137) ($388,396)
Memo: Taxable Income $239,121 $302,221 $368,151
Income Taxes ($86,083) ($108,800) ($132,534)

Net Operating Income $997,940 $1,040,358 $1,084,547

(Less Annual Debt Service) ($835,078) ($835,078) ($835,078)
Before Tax Cash Flow $162,862 $205,280 $249,469
(Less Income Taxes) ($86,083) ($108,800) ($132,534)
After Tax Cash Flow $76,778 $96,480 $116,934
Year
4 5
Year
4 5
$1,916,768 $1,993,439
($95,838) ($99,672)
$53,993 $56,153
($3,240) ($3,369)
$1,871,684 $1,946,551
$10,927,270 $11,255,088
($273,182) ($281,377)
($467,921) ($486,638)
$1,130,581 $1,178,536
($328,000)
($365,543)
$437,038
($157,334)

$1,130,581
($835,078)
$295,503
($157,334)
$138,169
PRO FORMA, CONTINUED

REVERSION CASH FLOW

Gross Sales Price
(Less Selling Cost)
Net Sales Price
(Less Outstanding Mortgage Balance)
Before Tax Cash Flow (BTCF) from Reversion

Net Sales Price

(Less Original Purchase Price)
Capital Grain from Appreciation
Capital Gain Tax on Appreciation

Total Accumulated Depreciation (Recapture)

Recapture Tax

Total Caital Grain Tax

BTCF from Reversion

(Less Total Capital Gain Tax)
ATCF from Reversion

Solution:
REVERSION CASH FLOW
Gross Sales Price $12,740,931
(Less Selling Cost) ($637,047)
Net Sales Price $12,103,884
(Less Outstanding Mortgage Balance) ($7,054,582)
Before Tax Cash Flow (BTCF) from Reversion $5,049,302

Net Sales Price $12,103,884

(Less Original Purchase Price) ($11,000,000)
Capital Grain from Appreciation $1,103,884
Capital Gain Tax on Appreciation ($165,583)

Total Accumulated Depreciation (Recapture) ($1,312,000)

Recapture Tax ($328,000)

Total Caital Grain Tax ($493,583)

BTCF from Reversion $5,049,302

(Less Total Capital Gain Tax) ($493,583)
ATCF from Reversion $4,555,720