by Bruce Kirsch

Founder and President of REFM

As I am analytical by nature, when I look at a commercial real estate property, I initially see a box of money — money going in as investment, and hopefully coming back out as expected over time. If you want to become a prudent real estate equity investor, you need to develop the ability to adopt this dispassionate lens, too.

Investing money in commercial real estate is not a game — the stakes are high, and you cannot let emotions enter into your investment, operating, financing or sale decisions. You always need to let the numbers speak for themselves. This is where financial analysis comes in. The activity of financial analysis can be treacherous, though.

The three most important things to remember when doing financial analysis on a deal are:

1. Garbage in, garbage out

If your assumptions are garbage, then the calculated outputs based on those assumptions will also be garbage. So you need to be honest and strict with yourself and make sure that all of your inputs are recent, relevant, reasonable and reliable. While this “GIGO” acronym is hackneyed, it’s so worn because it’s very right and very important.

2. Use common sense judgment

If you are using Microsoft Excel, you need to sanity check your outputs. It’s unfortunate but true: Excel will always carry out your instructions perfectly, meaning that if you tell your formula to do the wrong thing, it will—not knowing, wanting, or caring to tip you off that you’re calculating something incorrectly. So when you consider the model to be “done”, go away from it for a few hours, then return and print an investment summary and review it at the broad strokes level. Ask yourself questions like: Is it reasonable to invest $X and get $Y back in Z amount of time? Did I pay back the loan in full? Where could I be wrong?

3. Consider the minutiae, but don’t get lost in it

There is a notion of being “precisely wrong”, which means that you have accounted for everything, and everything is wrong, so what’s the point of accounting for it all in such great detail? The benefit is that the rigor of the detailed financial analysis process serves as a thorough checklist of items that you need to consider to comprehensively understand the nature of the investment. So it’s important to strive for a detailed understanding of the story. But for the thousands of hours that I have spent knee-deep in monthly-based Excel spreadsheets with hundreds of line items, where I achieve real clarity of vision is when I look at the annual cash flow report and read it from top to bottom, left to right.

A financial projection is a story about money, that’s all. If the story seems far-fetched or too good to be true, it probably is, and you shouldn’t believe it. Remember, no one can knowingly tell you a true story about the future.

For the past five years, I have been running a company called Real Estate Financial Modeling (REFM), and even recently built a web-based software platform called Valuate for detailed monthly projections and intuitive, big picture reporting. Having run analyses for multiple billions of dollars of real estate deals at REFM in Excel and Valuate, here’s what I have learned:

The key is to steep yourself in the details and then be able to take a step back, get out of the weeds, and determine, as a businessperson, if the numbers make sense.

Ask yourself: Do I believe this is what is likely to happen? With what level of confidence do I believe it? As formidable as Excel is, your human brain is more powerful… at least for now.

Above you’ll find an example of an analysis I did that tries to accomplish both aims: detailed and high level.

Email me at if you would like me to share this illustrative interactive analysis with you.

Best of luck in your real estate investing endeavors. Study the numbers, use your business judgment, and don’t lose sight of the big picture.

Valuate is led by REFM founder Bruce Kirsch. Mr. Kirsch started his real estate career with CB Richard Ellis’ Midtown Manhattan Investment Properties group. Since 2003, he has spent more time in Microsoft Excel analyzing commercial real estate transactions than he would care to admit. Mr. Kirsch has used this deep experience and connection to thousands of REFM’s customers to inform the creation of the ultimate web-based application for commercial real estate.

Mr. Kirsch holds an MBA in real estate from The Wharton School of the University of Pennsylvania and a BA in Communication from Stanford University. Mr. Kirsch is an editor of the Third Edition of the top collegiate real estate finance textbook, authored by Wharton School Emeritus Professor of Real Estate Dr. Peter Linneman.