Watch Me Build a Basic Real Estate Equity Waterfall Model with IRR Hurdles

In this video, I build a basic, 3-tier real estate equity waterfall model with IRR hurdles. Download blank worksheet together with the completed version, and follow along to learn one way I model real estate partnership cash flows in Excel.

00:00 - Introduction and Overview of Partnership Structure
05:31 - Equity Share, IRR Hurdles, and Property Cash Flow
11:38 - Modeling First Hurdle: LP's Capital Account and Sponsor Contributions
16:53 - Second Hurdle: Assumptions, Calculations, and Distributions
22:01 - Third Hurdle: Modeling Distributions and Final Review
30:34 - Conclusion and Upcoming Related Video Content

[josephallen]

Everyone of these Watch Me Build videos is fantastic. Please keep these coming! Really appreciate it. (Construction draw/basic ground up development model "watch me build video" would be amazing!

[axelcramer]

This was... absolutely excellent. Thank you. My LPs are going to be so fluent in reading their financial reports!

[MissOlgaLondon]

This is brilliant! I'm an experienced real estate investment specialist and still I find these videos so helpful!

[rauljimenez]

I love when I find such elegant and to the point resources/videos. Thank you very much for this!! Keep them coming!

[vosk]

This is very nicely done, thank you. In this scenario it does not seem the GP is earning their pro-rata share of the cash flow (10% * 75%) in the second hurdle. Is the deal structured structured differently? Thank you

[conquistador]

Your amazing, i love making these models and you teach this skill so well. Thank you.

[gayaa]

Thank you very much for this helpful video :)

[AhmedElhamaky-C]

It is a fantastic Video illustrating everything in details
Thanks!!

[newyorkcrop]

Thank you so much! This was really helpful!

[jolinchang]

Thank you so much! This is extremely helpful

[charlottebarlowco]

Spencer thank you for sharing your knowledge. Outstanding video!

[Adam_G]

Thank you for putting this out. Looking forward to the accelerator program!

[cnmills]

Thanks so much for sharing this highly valuable instructional vid. Your tutoring is spot-on!

[PeacherLiz]

I don't work in PE (yet) but this is a nice quick refreshment. Thank you!

[lucaslu]

Thanks for sharing your templates, they've been super helpful! I am building a model for a vacation rental property, it will be a partnership structure with a GP (sponsor) and LPs, holding period of 5-7 years. Question about row 34 (LP Req'd Return to hit Hurdle 1) - why is that being added to calculate the Ending Balance of LP account on row 37? (in addition to Distributions to LP on row 36)

Before the sale of the property in year 5, all cash flows available for distribution are going to come from monthly rental income, curious why row 34 is also being included in the running Ending Balance of LP account.

Thanks!

[duedmanbra]

These are great videos you provide to the public. We appreciate it!

[harjith.d.bubber]

This is the second video I've watched and they are superb. Thank you so much!!

[krdavis]

I really enjoy the watch me build videos.

[TheDylantaylor]

Super helpful video, thank you so much! One thing I noticed is that the model you built isn't set up to handle negative cashflow in year one as you started with a positive cashflow. I had to build in a couple of IF statements to make it flow properly.

[realestatedadspodcast]

Why in Hurdle 2, does it say prior distributions $157, 500 when $175K was distributed within Hurdle 1? 90/10 with $157, 000 going to LP and $17, 500 going to Sponsor totaling $175K. Hurdle 2 starts with $157, 500 distributed though $175K actually went out. It looks like there is an error in row 51 for Prior distributions @ 21:05, which only include the 90% LP distributions as opposed to the additional 10% paid out to the sponsor also. If i've made an error please let me know. I love the content though if I'm mistaken I would love to know.