Real Estate Financial Modeling’s
Seven Elements Of Successful Real Estate Investment
Welcome to REFM’s Seven Elements of Successful Real Estate
Investment e-book! The Seven Elements framework is intended to
give structure to and increase the potential for success of your real
estate investment pursuits. The Seven Elements can be seen as
steps to be executed in order, but when we are pursuing more than
one investment at a time, we will naturally be performing more
than one step simultaneously. When it gets busy, it is helpful to
have a framework to follow to keep things straight from one
transaction to another.
I wish you all the best in your real estate endeavors.
Real Estate Financial Modeling, LLC
ElementDefine your investment goal and strategy in detail
and put it down on paper
If you don’t know what your goal is, you don’t know if you are moving towards it or
away from it. Defining and describing your goal in writing assists you in refining and
crystallizing the thoughts that lie behind the goal setting process. You may find
during the course of writing and re-writing that the goal is actually something
slightly different than what you originally thought it was when it was just an idea
floating around in your head.
Writing your goal down also enables you to create a list of relevant investment
criteria that are necessary for you to achieve your goal (maximum investment amount,
time to return of capital, etc.), as well as requires you to identify your intended
strategy for value creation.
If you have ever had what you thought was a brilliant business idea and it kept a hold
of you long enough for you to commit it to paper, you probably remember that what
ended up on paper was at least slightly different from what had first bounced into
your head.The reason for the differences were that drafting and re-drafting the idea
forced you to define and flesh out details that you were probably too excited to bother
with when it was just a manic, relatively shapeless notion.
It is the drafting and editing process that requires you to not only define the what,
but also the when, why, how, and who.
For example, if you want to acquire a value-add multi-family property, you need to
begin to ask and answer dozens of questions, such as:
What is the property worth? What is the current NOI?
What is my strategy with respect to the unit renovation program?
Who will perform the work? What will it cost?
Why should I acquire this property and not another one in the same neighborhood?
How much debt financing could I get to acquire the property?
What will the interest rate be?
Who will I get to co-invest? What level of control will they require?
How long will I hold the property?
As you can see, once you become more serious about the thought of the proposed
investment, you have a lot of work to do, and putting thoughts down on paper helps
you to organize that work, as well as to stress test the attractiveness of the investment
opportunity. If you like what you see after doing your homework, you can move
forward with confidence.
6 getREFM.com6 getREFM.com
ElementIdentify your individual strengths and weaknesses,
and that of your team as a whole, and address them
Performing a candid inventory of your and your team’s core competencies with
respect to knowledge and analytical and technical skills is critical to setting yourself
up for success.
You can never be too strong in any area, and it will benefit you to improve on your
weak areas. Educate and train yourself and your team members to be equipped and
ready for top performance, especially in times of high pressure and chaos.
You can accomplish compiling a skills and strengths inventory by performing a
360-degree team feedback session.This is a great technique in which every member
of the team anonymously (thus candidly) evaluates in writing every other member
of the team, and then presents each team member with the completed questionnaires
from their fellow team members.
The questions that are on the questionnaire can be something like this:
1. What are [ Name of colleague ]’s most valuable attributes as a team member?
2. What is his/her greatest weakness as a team member?
3. In what areas is he/she strongest with respect to individual knowledge and
4. In what areas is he/she weakest with respect to individual knowledge and
5. If you could change one thing about the way he/she interacts with you,
what would it be?
Admittedly, answering these questions frankly about your colleagues can be difficult
or awkward, but it is in the best interest of the team for everyone to be honest in their
My business school training included one of these 360-degree inventories with our
learning team, and it was not easy to hear some of the things that were said of me.
In retrospect, the things that hurt the most were the most valuable to my future
development because I really took them to heart. All feedback, by definition, is valid.
It is what you decide to do with it that determines your professional growth.
The beautiful thing is that once you come to understand where you are perceived to
be weakest, you can address those areas head on. If you are a great financial modeler
but don’t have a deep knowledge of construction basics, you can bone up on
construction knowledge, and vice versa.The more valuable you become to your team,
the better off you are, and the better off the team is as well.