Get a brief overview of the hypothetical investment involving multiple investors that will be used to showcase the different investment scenarios covered in this course.
- All right now, previously we talked about what the waterfall framework is, kind of it's definition and the different types of the waterfall framework, the two tier, the three tier, and then the four tier with the catch up. What does it really look like when we apply the waterfall framework to an investment. So, in the next few lectures we're going to see how that woks when we apply to an investment. And the sample investment that we're going to look at is the one you see in front of you. Now, you don't really need to worry about all the numbers.
These here are based on an estimate of what a multi family project might look like that costs just under $1.5 million, and then it generates some cashflow. Now in this case there is some debt that was layered on to the investment, so the ultimate investment cashflow for the investors for this project with about a 50% loan here is that it's about 730,000 equity out, that's the total investment. And here are the cash flows for every year thereafter.
Now, the waterfall framework, all you need in order to use the waterfall framework for any investment is to make sure you have the cash flows, the final cashflow estimate by year, or by month, either way works. But you're waterfall structure has to be adjusted for that. In this case for the examples, to make it easier we're going to do it by year. So, if you have the cash flows for any project then you can feed waterfall framework directly to the project.
So, in this part here we're going to take row 26, which is the cashflow. So, it has the total investment. It has the cash flows going out to year 15, including a sale of the asset, that's why there's a bigger number there. And then we're going to feed that into the different waterfalls. And we'll see what that looks like and compare all of the different scenarios here. (electronic music)
- Risks of real estate investing with partners
- Waterfall examples: 2, 3, and 4 tiers
- Choosing a waterfall model
- Accounting for losses
- Tracking rental income using the waterfall framework
- Analyzing fix and flips using the waterfall framework