Overview · What & why
A decision, before a calculation.
Property value at exit is not the same as equity proceeds. Sale costs and outstanding debt must be paid before owners receive residual cash. Interim cash flow includes operating income, capital spending and debt service. A credible return model shows each component and labels whether the return belongs to the property or to the equity investor.
A concrete example
A $15M gross sale with 2% costs leaves $14.7M before debt. A $8M payoff leaves $6.7M equity proceeds. That is not all profit: the investor contributed equity earlier and may have funded deficits.
What to remember
Trace proceeds from property value all the way to investor cash.
Before using this in a project: Forward operating forecast, exit cap rate, selling costs, debt balance and prior contributions.