Summary
Full Transcript
In the fifth lesson of the financial modeling course, the focus is on modeling levered cash flows. Here's a summary of the key points covered in this lesson: Introduction to Levered Cash Flows: The lesson begins by introducing levered cash flows. These are cash flows that take into account the impact of debt financing. Debt Repayment Schedule: It's considered good practice to start by modeling a debt repayment schedule. This schedule shows the debt balance at the beginning of each period, the interest cost, principal repayment (amortization), the total debt repayment, and the remaining debt outstanding. The debt drawdown, in this example based on LTC (Loan to Cost), is used to finance the acquisition cost of the project. The formula for the initial loan amount is explained. Interest costs are calculated based on the loan balance. In this example, there is no amortization, meaning the loan amount remains the same each year. The debt repayment schedule is linked to the levered cash flows. Levered cash flows are essentially the combination of unlevered cash flows and the debt repayment schedule. Effect on Returns: By modeling levered cash flows, you can see how debt financing impacts your returns. In the example given, higher interest costs are shown to decrease the levered returns compared to unlevered returns. Value Impact of Debt Financing: The lesson highlights that the interest cost of debt financing has a direct impact on your returns profile. If interest costs are high, they can negatively affect your returns, possibly to the extent that leveraged returns are lower than unleveraged returns. This lesson provides an essential understanding of how to model levered cash flows and how debt financing can influence investment returns. It emphasizes the importance of considering the specific terms of debt financing and how they affect your financial model. Download financial model All financial modelling files and support files for this case study can be downloaded here https://www.reia-edu.com/beginner-real-estate-financial-model For more advanced real estate investing and financial modelling courses please visit: www.reia-edu.com
Continue this lesson in the app
Install CourseHive on Android or iOS to keep learning while you move.
