IRR vs. NPV - Commercial Real Estate
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- Опубліковано 3 жов 2024
- IRR vs. NPV - Commercial Real Estate
Trying to figure out the difference between the IRR vs NPV in real estate investing? In this video, we’ll talk about the IRR vs NPV, which is better, go over an IRR vs NPV example, work through the IRR vs NPV in Excel, and break down the DCF real estate analysis. Whether you’re a real estate analyst or just looking to beef up your real estate financial modeling skill set, you’re in the right place.
Want to learn how to build models from scratch so you can actually use these metrics? Check out my free real estate financial modeling crash course: breakintocre.c...
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I spent hours trying to understand this from my lecturer and you explained it perfectly in just 5 minutes. Thank you for your content, this was super useful!
this my favorite channel on your tube. You are such a godsend!! God bless you. You have no idea how helpful this is to me
I'm so glad I found your channel. This will be beneficial for me this year. Thanks a million!!! :)
about to go through all your videos starting with this.
I understand the concepts clearly now that I have listened to your video. Thanks a ton.
Information was clear and concise. Thx for the video!
Thank you, Joe! Glad you found it helpful!
Wow..... you made my life a lot easier.........Thanks for what you do....
Awesome video, thanks man!
Great video, thank you!
Tremendous. Thank you!
Hello Justin, I have taken one of your courses on udemy and it was awesome! But I am still trying to understand IRR and it will be awesome if you can do a video on that only (IRR for residential real estate). Also, you said it can be used to compare real estate to other investment options, so I will love to understand more. Thanks.
Great suggestion and appreciate the feedback, Olaitan! Will add to the list of potential future video topics.
Great content !!
Can you not also take into account the acquisition price when calculating the NPV?
Why is the NPV formula =NPV(B4,C2:L2)+B2 and not simply just =NPV(B4,B2;L2)??? Why do you have to add back the initial purchase price, when it can just be captured in the sum upfront? Returns between both methods are similar but they do differ.
The NPV formula discounts the first cash flow as if a full period has passed, so the initial cash outflow will be discounted by the discount rate. Since this is our initial cash outflow that starts the analysis at time 0, it shouldn't be discounted. The XIRR function solves this and does not discount the initial cash flow, so you would include the initial cash outflow in that function.
Note: You are actually moving a step ahead by putting the Investment into the npv calculation.
To understand it better mathematically better maybe: Calculate NPV of future cash flow. If NPV > Investment ist good.
You can test by putting the same percentage for IRR and WACC the NPV= Investment.
I love your video. So far the best explained one I have seen! So thank you! But... please... I am not a financial type of person... at all. So when you say that we want the NPV to be '0'... why? I am not into a real Estate business, but I am having to put together an "accurate as possible" business plan, because I need investors. I know they will be looking at this. I specifically don't understand how you come up with 9%... why 9 and not 15%? Also... why when you up the 10.95 to 11%... we are now in a negative NPV... how is negative anything good for investment? Does an investor tell me what % they want of return and that would be what I have to work with? What if the % of growth... meaning, what happens if my company makes more than what the investor expected? Or will the investor look at this NPV-IRR equation and based on that data negotiate with me... Sorry to bother. It has proven difficult to understand in plain English I don't have time to take a whole course.
For the cash flow amounts, do you use FV or PV?
How do you choose the discount rate though? If someone asked why is the discount rate 9%, what is the answer?
Thanks for the video. I have a question re the initial investment/deposit.
As using equity from another property is basically another loan, do you consider the equity used in this case as an initial investment when calculating IRR?
Column L is the value of the investment after 10 years? Of a sum of values?
Hi there - great video thanks what have you assumed with the cash flows ? That the rent will go up 0.97 percent each year is that coorect / thks v m the rest of it I think I understand for the most part !
When you say "worthwhile," does that reflect breakeven or worth making the effort and taking the risk?
Worth making the effort and taking the risk - essentially if it hits your desired investment returns or not.
Does anyone know where he got the year 11 value from?
I'm in the process of obtaining my real estate license live in Orange County California still debating between residential and commercial any advice?
Depends on what you want to work on. Both can be big money if you're good, so it comes down to if you like to work with the investment/finance side of things in CRE, or if you're more interested in helping people find homes to live in. You can make a great living either way if you stick with it.
@@BreakIntoCRE as far as starting real estate investing with california being soo expensive to start how much realistically would one need to start with $$?
@@WallStreetIceCream really depends on your personal living expenses. For 100% commission brokerage jobs, most people make zero or very little money their first 1-2 years in the business, so you may want 12-18 months of living expenses as a buffer, but it totally depends on your own situation.
@@BreakIntoCRE how about real estate investing ? you like single family or multifamily ?
2 years coló to i r r , is no may Bird way, is no my SS. . I not pay my tax
Yo no existo para el IRS. Entonces el año que viene no pago taxi. Porque mi fecha de nacimiento no es, mi seguro social no es , soy ciudadano voté por la democracia que es lo que pasa. Tengo que salir de este país o que?
okay, your eyes are distracting me,. so beautiful