Real Estate-as-a-Spreadsheet
I like real estate because it’s a story entrapped in bricks & sticks. Every piece of real estate has a lineage of title and each owner has it’s own story of that building. Whether it’s a single family home where Mrs. Brown raised her family for 30 years and has burned off her mortgage or it’s a self-storage facility that Mr. Joe Investor owned for 5 years and let it cash flow to pay for his daughter’s college tuition, each physical structure has a story of its life. Some real estate has more of an emotional tale while others have a more financial epoch. In any case, real estate is merely a spreadsheet.
It’s a bit of a sad reality to think that most real estate investors see their buildings as physical spreadsheets. There are one too many cautionary tales where real estate owners became emotionally attached to their building rather than cooler heads prevailing. Those are the stories of unrealistic sellers who rode their building to the bottom or refused to lease it to a tenant for prejudicial reasons. Often times real estate should be viewed no different than buying a faceless income producing asset. No matter how you skin it, A building costs X to build, Y to buy, Z to rent, and the inputs to run it, manage it, and improve are the rest of the alphabet and more. Every decision that a real estate owner makes is another line in that dynamic spreadsheet that has an impact on the others. Rather than fight that reality and convince me otherwise, let’s play their game…
I spent the last few weeks on the road at a few different conferences meeting with real estate owners and trying to build deeper relationships to grow our EV charging business. While everyone came off deeply interested in what we’re building at Xeal, brass tax came down to the spreadsheet and how we’d impact the numbers. The spreadsheet asks a few benefit questions:
Can you help me increase rent?
Can you help me improve vacancy?
Can you reduce operating expenses?
Can you create ancillary income for the asset?
Now that you’ve answered what you can do for me, can you tell me what it’ll cost me?
How much capital will this take to pull off?
How will this impact my tax liabilities or depreciation schedule?
How will we finance this?
After numerous discussions with peers in the industry over the last few weeks, the spreadsheet math continues to change - dominated mostly by interest rate adjustments over the last year. As we’ve seen interest rates move, we’ve seen spreadsheets tighten up more than a hand-wrung cloth, which means you have to be that much smarter on how the inputs affect the output. While humans with emotions operate the spreadsheets, money talks and everything else….takes a jog in the park.
I like selling on emotion but emotion needs to translate to dollars and cents at some point in any process. If you emotionally can get in the boat with me, then let’s drop some numbers in the spreadsheet and show you how one of the four benefits can be reached by some of the capital required to invest in the project.
I used to gush over beautiful architectural marvels, now I gush over well structured spreadsheets that mask themselves in gorgeous exterior skins in the real world.
Succint +insightful, enjoyed it, thanks