Introduction to Real Estate & Financial Modelling

What is Real Estate?

Real Estate means land and anything permanently attached to it and cannot be moved to other places as per your wish, such as:

• Houses
• Buildings
• Apartments
• Offices
• Shops
• Warehouses

Examples:

• A flat you rent → Real Estate
• A shopping mall → Real Estate
• A plot of land → Real Estate

Types of Real Estate

Understanding property type is very important before modelling. So first I will easily tell you about multiple real estates.

1. Residential Real Estate

Used for living purposes.

• Apartments
• Individual houses
• Villas

💡 Income comes mainly from rent.

2. Commercial Real Estate

Used for business activities.

• Office buildings
• IT parks
• Corporate spaces

💡 Usually gives higher rent but higher risk.

3. Retail Real Estate

Used for selling goods.

• Shops
• Showrooms
• Shopping malls

💡 Rent depends on footfall and location.

4. Industrial Real Estate

Used for production or storage.

• Warehouses
• Factories
• Logistics parks

5. Land

Empty land with no construction.

• Agricultural land
• Development land

💡 Mostly for long-term appreciation.

What is Financial Modelling?

Financial Modelling means creating a mathematical representation of a real-life business or investment using numbers, mostly in Excel.

In simple words:
Financial model = Story of money written using Excel

Example:

Instead of saying: “This property looks profitable”

You calculate:

• Rent
• Expenses
• Loan
• Cash flow
• Profit
• Returns

👉 This calculation sheet is a financial model.

What is Real Estate Financial Modelling?

Real Estate Financial Modelling is using Excel to analyze a property’s income, expenses, loan, cash flow, value, and returns over a period of time.

It answers questions like:

• How much rent will this property earn?
• What are the expenses?
• Should I take loan or buy in cash?
• Is this property worth investing in?
• What will be my profit after 7 or 12 years?

Simple Definition:
Real Estate Financial Model = Future financial performance of a property shown in numbers.

Why Real Estate Financial Modelling is Important?

Without modelling:

• Decisions are emotional
• Investors rely on gut feeling
• High risk of losses

With modelling:

• Decisions are logical
• Risk is measured
• Profitability is visible

Benefits:

✔ Understand real cash flow
✔ Compare two properties
✔ Know true value of property
✔ Plan loan & investment
✔ Avoid bad deals

Difference Between Corporate & Real Estate Financial Modelling

Point	Corporate Modelling	Real Estate Modelling
Focus	Company	Property
Revenue	Sales	Rent
Assets	Machines, inventory	Building, land
Cash Flow	Business operations	Rental income
Exit	Share price	Property sale

Mini Case Study

Case: Two Similar Flats, Different Decisions

Flat A

Price: ₹60 lakh
Rent: ₹20,000
High maintenance

Flat B

Price: ₹55 lakh
Rent: ₹22,000
Lower expenses

❓ Which is better?

Without modelling → always confusing
With modelling → answer becomes clear to all

👉 Real Estate Financial Modelling helps you choose Flat B logically.

What You Will Learn Next

After this chapter, you will learn:

• How real estate earns money in detail
• Important real estate terms
• How Excel is used
• How to build a complete model step-by-step
• How to value a property professionally

Move to Next: Understanding How Real Estate Makes Money