The XIRR formula, included with Excel and other spreadsheet programs, is commonly used to measure investment performance in commercial real estate. The XIRR formula is popular because, unlike the IRR function, XIRR can handle irregular cash flow patterns. However, although XIRR is widely used, it is also widely misunderstood. In this article, we will take …
The Internal Rate of Return (IRR) is a fundamental measure of investment performance in commercial real estate. While IRR provides an overall picture of return, understanding the specific sources of this return—whether from operational cash flows or from the sale of the property—can provide deeper insights. Partitioning the IRR allows you to dissect the overall …
The loan to value ratio (LTV) is widely used in commercial real estate. It is calculated by dividing the loan amount by the value of the property and expressed as a percentage. In this article, we will review the loan to value formula, how to calculate LTV, its significance, and its use in real estate …
Effective gross income is a line item on a real estate proforma that is commonly used by appraisers, investors, and other commercial real estate professionals. Although the effective gross income is easy to understand conceptually, the calculation itself can sometimes be confusing. In this article, we’ll take a closer look at effective gross income and clear …
The yield on cost is a commonly used metric when evaluating real estate development and value-add projects. It is easy to calculate and is useful as a back of the envelope calculation. In this article, we’ll take a closer look at the yield on cost in real estate. Here’s what you’ll learn: What is the …
Modern portfolio theory is widely used in the world of finance. In this article we’ll take a closer look at what modern portfolio theory is, review an example calculation, and discuss the assumptions behind the theory. What is Modern Portfolio Theory? Modern portfolio theory (MPT) is widely used in finance and commercial real estate to …
Year over Year (YoY) analysis is a powerful tool for financial analysis that provides a direct comparison of performance between two periods of time. In this article, we will explore what YoY analysis is, how it is calculated, and why it is useful. We will also look at the advantages and disadvantages of YoY analysis …
The gross income multiplier is a metric used in commercial real estate valuation by analysts and appraisers. It is easy to calculate and requires little information, but it does come with some limitations. In this article, we’ll take a closer look at what the gross income multiplier means with several examples, including the potential gross …
To minimize or defer the tax bill when selling investment real estate, investors commonly use what’s known as a 1031 or Like Kind Exchange. In this article, you’ll learn what a 1031 exchange is, how a 1031 exchange works, what the 1031 exchange rules are, the 1031 exchange timeline, and then we’ll cover some frequently asked …
Interpreting interest rates is not always as straightforward as it seems, and getting it right can have important implications for all parties involved in a commercial real estate transaction. Interest rates can take two forms: nominal interest rates and effective interest rates. As a result, there can be some confusion about what a quoted interest …