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[{"id": "htdots5", "text": "So there are some flaws: first off, not every property would be worth $1M but as a whole, would be worth $10M.  Let\u2019s say a 10 unit and a 1 unit were sold together for $2M combined.  They wouldn\u2019t be worth $1M each because they aren\u2019t.  \n\nThe market/previous ownership would\u2019ve valued the whole as $10M.  Each cash flowing differently at different rates.  You would be able to buy them with one blanket mortgage and separate portions so you would be able to sell one.", "replies": [{"id": "htdp9np", "text": "Yes, you're spot on but that doesnt address the question. Regardless of the cost allocated to each property, is it acceptable to report a property level IRR for the individual properties or would it need to be reported on the entire portfolio since that is the way it was acquired?", "replies": [{"id": "htdqp0p", "text": "It (should) be reported on an individual level.  I was looking through a BiggerPockets question kind of similar and it has to be separate", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "htdqqhd", "text": "This is easily addressed with two IRR runs. One for at the deal level and one at the fund level- consider the portfolio as a fund. \n\nEach individual deal should feed the fund level run. \n\nThat way you can identify performance of each deal individually and the performance in the aggregate. \n\nWe do this everyday in my line of business. Affordable housing investment syndications.\n\nEdit: the fundamental flaw is in your assumptions. You\u2019ll need to assign a different value to each individual investment that is ratio used by the market value. Not cost accounting. \nYour last paragraph answers most of your own question.", "replies": [{"id": "htdspnu", "text": "Ratio of what to market value? IMO theres no way to assign accurate values to the individual properties. The only way to KNOW what a property is worth is to have a transaction from willing buyer to seller. We do KNOW what the portfolio is worth, but not each property. Using a ratio wont solve this problem.\n\nThe two runs also wont suffice because sometimes the IRR's are presented on properties sold in a specific year. So it may include only one and not the others.", "replies": [{"id": "htdy3nw", "text": "Ok I\u2019ll play along. How do you KNOW what the value of the portfolio is?", "replies": [{"id": "hte0dye", "text": "Because that what you paid for it from a willing seller.\n\nEdit: im referring to at the time of acquisition. If you had the winning bid at $10M then thats what the market determined its worth. But that doesnt say anything about the value of each, individual, property.", "replies": [{"id": "hte5p3d", "text": "But you have to see where my line of questioning is heading.  Surely there was a financial analysis of the historical and projected cash flows used to derive an estimated value or asking price that ended up at $10MM. Unless you\u2019re saying there was no analysis or due diligence performed and an offer of $10MM was accepted as a wild guess.\n\nIf so, you could back into a cap rate based on your purchase price of $10MM using the aggregate NOI of the portfolio. Then apply that \u2018average\u2019 cap rate to each individual property NOI and there you have an estimated value rooted in objective rationale (in the absence of a better idea). Unless the properties are located in wildly different markets or different asset classes or something. \n\nI don\u2019t disagree that the $10MM is the market value of your portfolio at a moment in time. But that value is rooted in a variety of valuation methodologies that can be applied constructively to help answer your originally posted question.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hte32lo", "text": "Did you purchase on one PSA? That\u2019s uncommon so your hypo probably wouldn\u2019t happen IRL", "replies": [{"id": "htec2qo", "text": "It happens all the time.. I'm asking about a real life scenario, albeit with different numbers.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hte6a3e", "text": "As blue\\_river\\_ventures stated, you run 2 IRRs (one at the property level, one at the portfolio level).\n\nIf you allocated incorrectly (assuming not grossly misallocated), some property will have low IRRs and others will high IRRs.  But overall, at the portfolio level, it all evens out. \n\nIf you have debt on the portfolio, get copies of the appraisals and use the appraised values and the purchase price to allocated a value to each property.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hte49li", "text": "From an accounting perspective, you would assign a portion of the purchase price to each property.\n\nThis is what GAAP says, but it\u2019s also intuitive. If the portfolio was 9 trash filled lots that produced no income and one apartment that kicked off a million dollars a year, you wouldn\u2019t sell me the apartment for a million dollars. So you shouldn\u2019t carry it on your books for a million dollars.", "replies": [], "depth": 1}]