Income Property Valuation Model | A Step-by-Step Guide

Income Property Valuation Model

Income Property Valuation Model

Inspired by a podcast on the Tropical MBA on property investment, I thought that I would dust off my Income Property Valuation Model that I created about ten years ago when daydreaming about investing in income properties.  I usually post about SaaS economics and forecasting, but it is good to change the subject every now and then.

Since I love building Excel models, I searched the Internet and books on this topic to find the finance theory around income property valuation and cash flows.  I don’t remember now where I found the structure of this model, but I thought it might be of interest to those who invest in real estate or thinking about investing.

You can download the Excel model below.

I realize that real estate investing gets much more complicated than this model, but it could be a great start for those new to investing and modeling cash flows and returns.  Otherwise, how do you know if the income property is a good investment?

Model Components

With my latest models, I create step-by-step instructions with links to guide you through the model.  I won’t rehash the instructions here (download the model below), but I will give you an idea of how the model is setup and what it can do for you.

Step 1 – Loan and Tax Inputs

This tab will capture inputs related to loan information, tax rates, and property information.  With these inputs it will determine your mortgage payment, the seller’s return, the property’s depreciable base, and a simple valuation based on net operating income (NOI) and an assumed market capitalization rate.

income property loan tax inputs

Step 2 – Property Inputs

In this tab, you enter rental information (units, rent), vacancy assumptions, and operating expense assumptions.  With these inputs, this tab will create an average monthly income statement and an annual income statement so that you can determine NOI, cash flow, and margin.

income property rental inputs

Step 3 – Cash Flow Analysis

With the hard work done in step 1 and 2, you will only need to enter an inflation assumption for NOI for the five year cash flow forecast and a discount rate for the required rate of return for the NPV (net present value) analysis.

Based on the inputs so far, this tab forecasts your taxable income, your before and after-tax cash flow, and the NPV of this project assuming a five-year investment horizon.

income property cash flow analysis

Step 4 – Property Sale Proceeds

Just three inputs are required on this tab to determine your income tax liability on the sale of your property and the after-tax proceeds from the sale.

income property sale proceeds analysis

Step 5 – Review Your Analysis

That’s it.  You now have your very own income property valuation model.  Use this model to review your cash flows, margins, income statement, NPV analysis, and proceeds analysis.

I believe this provides you a good high-level financial analysis of how an investment property will perform.  This model can be a great way to assess opportunities in your market or to analyze the performance of existing rental properties.

Real estate is outside of my normal operating experience, so please let me know what feedback you have on this model, what works or doesn’t work, and what models you use to analyze income properties.

Please enter your valid email below (no spam) for the instant download.  I’ll keep you updated on future models.

If you do not receive the download, please contact me.

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