Apartment Building Acquisition Analysis Back of the Envelope Calculator

A back of the envelope, or “BOTE” analysis, is intended to give you a broad brushstroke view of the economics of a potential transaction. BOTE-level analysis is used to quickly screen potential deals in and out of one’s deal pipeline. A high level of detail is purposefully forfeited in BOTEs for the sake of speed of execution.

Pricing an apartment building for purchase

For an apartment building acquisition, BOTE analysis focuses in on the property Purchase Price as it relates to the going-in (Year 1) cap rate, and secondarily, the Year 1 cash on cash return, the latter of which relies upon debt financing assumptions. For instance, a buyer might manipulate the Purchase Price, while holding all other inputs constant, to solve for a targeted going-in cap rate (NOI/Purchase Price) of 8.00%.

How to use the Valuate® calculator

Click on any blue input value to make changes. Hit Enter or Tab after you have made an input, and then click on the next input field to edit it. Click the Save file button at the top to save your work periodically. A tutorial video is at the very bottom of the page.

Back-solving for an attractive Purchase Price

Valuate’s BOTE calculator allows you to enter in a target Year 1 Cap Rate to back-solve for the Purchase Price on a residual basis. In other words, once you have rents and expenses inputted, you can override the value for Year 1 Cap Rate with your target going-in Cap Rate and watch the Purchase Price update.

Understanding the Sensitivity Analysis tables

Sensitivity analysis is a way of stress-testing key calculation-based outputs based on the changing of one or more inputs that impact the output in question. Each of our calculator’s Year 1 Cash on Cash return sensitivity analyses shows the intersection of two key inputs, with increments of change for each input, and the resulting spectrum of values for the cash on cash return.

If you have been following REFM, you may remember that this tool used to be offered in Excel. Recognizing that these BOTEs are often run in the field, and that Excel is just plain awful to use on your phone, we put all of the capabilities of the Excel template onto Valuate® so you can run analyses comfortably no matter where you are. Enjoy.