Valuation & Leverage Lab
Basic Real Estate Investment Model
Valuation & Leverage LabValuation & Leverage Lab
Interactive lab
This is the in-browser version of the class Excel model. Drag any assumption and the proforma, both valuations, and the levered return recompute instantly.
Try these experiments:
- Lower the going-in cap rate from 6.5% to 5.5% — watch value jump (you're paying more per € of income).
- Set the exit cap rate above the going-in rate — see the DCF value fall below the direct-cap value.
- Push the mortgage rate above the cap rate — the insight flips from positive to negative leverage.
Interactive Simulator
Mini Lab
🧮 Property Valuation & Leverage Lab
Adjust the assumptions. The proforma, both valuations, and the levered return recompute instantly — the in-browser version of the class Excel model.
Assumptions
Potential Gross Income€100,000
Vacancy rate5.0%
Operating expense ratio35%
Going-in cap rate (R₀)6.50%
Required return (r)8.0%
NOI growth (g)2.0%
Hold period (years)5 yrs
Exit cap rate7.00%
Loan-to-Value (LTV)60%
Mortgage rate5.0%
Value · Direct Cap
€950k
NOI₁ ÷ cap rate
Value · DCF
€905k
5-yr hold
Levered IRR
9.3%
60% LTV
Equity Multiple
1.50×
over 5 yrs
| Potential Gross Income | €100,000 |
| − Vacancy (5.0%) | (€5,000) |
| = Effective Gross Income | €95,000 |
| − Operating Expenses (35%) | (€33,250) |
| = Net Operating Income | €61,750 |
| Implied value @ 6.50% cap | €950,000 |
Loan €570k · equity €380k · annual debt service €40k · DSCR 1.53×
Equity cash flow
Mortgage rate (5.0%) is below the cap rate (6.50%) → positive leverage: debt is lifting your equity IRR to 9.3%.
Reading the leverage result
Leverage is positive when the cost of debt is below the property's cap rate — each borrowed euro earns more than it costs, lifting equity IRR. It turns negative when the mortgage rate rises above the cap rate, and debt starts diluting returns. Lenders also watch the DSCR (NOI ÷ debt service); most want at least 1.25×.