A Helpful Introduction for Beginning Real Estate Investing

This article was written to acquaint anyone who has an interest in real estate investing with the most popular and commonly used reports, terms, and rates of return associated with real estate investing and investment analysis.


APOD – an APOD (an acronym for annual property operating data) gives a snapshot of a rental property’s income, expenses, and cash flow for one year. It is regularly used by analysts as a first-glance look at the financial performance of investment property without including the elements of tax shelter.

Proforma Income Statement – this report provides a useful way for agents and individual investors to evaluate the future cash flow performance of rental properties. It generally includes calculations for tax shelter so investors can evaluate such things as cash flow after taxes, depreciation, tax benefit or loss, and various rates of return on a year-by-year basis for up to any number of years.

Comparable Sales Report – this report surveys what other similar property has recently sold for and helps someone investing in rental property to evaluate whether a seller’s asking price is in line with realistic property value.

Marketing Package/Executive Summary – these reports are used to provide an overview of income properties currently listed for sale. Listing agents typically prepare one or the other so when you call an agent about a property just ask them to send you the one that they’ve created for marketing the property.


Gross Scheduled Income – also known as potential gross income, this is the total annual rental income a property would generate if all the units were occupied and all rent collected. Its purpose is to estimate the maximum potential income the investment real estate would generate without regard to any vacancy or credit losses.

Operating Expenses – these are costs associated with keeping a property in service such as routine maintenance and repair, utilities, property taxes, insurance, and management fees. They do not include the mortgage payment, income taxes owed by the investor resulting from owning the subject investment, or allowances for depreciation.

Net Operating Income – this is the amount of income remaining to pay the mortgage after deductions for vacancy and operating expenses. Think of it this way: If the property was wholly owned and without debt, it would be your cash flow before taxes and depreciation are considered.

Cash Flow After Tax – this is the annual cash flow projection remaining after income taxes and other tax shelter elements.

IRC 1031 Tax-Deferred Exchange – this federal tax code provides investment property owners with a means to dispose of one real property asset in exchange for another without having to pay taxes in the year of the exchange. The tax obligation is not vanquished, but Section 1031 permits the investor to defer federal tax until an actual sale of the rental property occurs. It is strongly advised that a tax exchange professional be consulted before you sell any investment property.

Depreciation and Recapture Tax – depreciation is a noncash tax shelter deduction in full compliance with the tax code based upon the type of investment property owned (i.e., residential or commercial). On the flip side, however, because the depreciation taken reduces your investment property’s tax basis and effectively increases your tax gain when you later sell the property, the IRS assumes that any gain you make in part may have resulted from the depreciation taken and in turn imposes a recapture tax on the gain attributable to depreciation taken. Always consult your tax advisor before you sell your rental property.

Measures/Rates of Return

Gross Rent Multiplier – this is used to measure the ratio between annual gross rental income and sale price. It is computed by dividing the property’s price by its gross scheduled income and is commonly used in real estate investing for simple, rule-of-thumb comparisons to other rental property opportunities. As a buyer, the lower the gross rent multiplier is the better.

Cap Rate – this is by far the most popular financial measurement you will encounter in real estate investing because cap rate (unlike gross rent multiplier) accounts for the property’s operating expenses. It is computed by dividing a rental property’s net operating income by its price. As a buyer, the higher the cap rate is the better.

Cash on Cash Return – this is the return on your initial investment based upon the cash flow generated by the property during the first year. It is computed by dividing the first year’s annual cash flow before taxes by the investor’s initial investment.

Internal Rate of Return – this return reveals in mathematical terms what an investor’s initial cash investment will yield based on an expected stream of future cash flows discounted to equal today’s dollars. Because it calculates for time value of money, thereby allowing analysts to take into account both the timing and the scale of cash flows generated by the investment property, it is one of the more popular rates of return used in real estate investing. You will need a financial calculator or appropriate real estate investment software solution to make this and other time value calculations, however.

It should be noted that ProAPOD Real Estate Investment Software creates these reports and rates of return and more.

3 Reasons to Start Selling Rental Property

Residential real estate agents who choose to sell rental property make one of the smartest decisions to build a real estate business possible. I made that decision early in my real estate career and now, having specialized in investment property real estate for nearly thirty years, I can state three good reasons why residential agents should start selling rental properties.

1. Rental property, multifamily or commercial, can lead to gigantic commissions. My first time out as a residential broker looking to sell investment property landed me a million dollar retail listing that subsequently resulted in a tidy commission and a loyal real estate investor customer I serviced for years after.

2. Real estate investors are repeat customers. True, home buyers are repeat customers, too, but I’m speaking in terms of turning a transaction perhaps multiple times a year. The logic is straightforward. Whereas homeowners buy a house to shelter a family, and perhaps make a transition in 5-7 years to up size or downsize, many real estate investors are ready and willing to invest in real estate when it makes sense. I regularly sold various income properties to the same investor within the same year.

3. Thirdly, real estate investors are generally open to sell an investment property if it makes sense. Whereas a homeowner might balk at the idea of exchanging residences without reasonable cause, one of the true benefits of working with investors is the fact that they are running a business less affected by family matters and will always entertain ways to increase their bottom line. In over thirty years, I never had an investor refuse at least to listen to an investment proposal I made about rental property.

It’s not a magic bullet. Selling rental properties, not unlike any real estate service we provide, naturally requires a commitment. But if you’re willing to learn something about real estate investing, understand how to run the numbers (real estate investment software makes this easy), and are not afraid of some good old fashioned hard work, you can start selling rental property whenever you want to.

Setting Achievable Real Estate Investing Goals

by Lolita Sheriow

Real estate investing is about more than numbers. It flows from a state of mind. The most successful real estate investors often become so because of an ability to maintain balance. They maintain it not just in their bank accounts, but in life in general.

Part of achieving that balance comes from goal setting. Goal setting is critical not just in business, but in everyday life. Life coaches regularly advise followers to set financial, physical, personal development, family and spiritual goals. Those goals become a person’s motivation for everything they do in life.

Goal setting brings meaning and order to day-to-day living. Now apply this idea to real estate investing. Real estate investment goal setting gives an investor a clear picture of what he or she wants. It also provides the investor the vehicle with which to achieve those goals.

One key aspect of goal setting is writing those goals. Goals are more likely to be achieved when written down. Writing goals provides a tangible, visual and interactive reminder of what is important to a person and why. The same thing applies to real estate investing goals. Real estate investors should start by determining the motive for buying real estate.

Ultimately of course, the goal is to make money. However, an investor should decide why he or she has chosen to use real estate as a vehicle for making money. Some examples of motives for real estate investing may be:

* To garner a livable income in order to quit a current job

* To earn extra money (for a dream vacation, to purchase a better home to live in, to save for a child’s college education, etc.)

* To improve economic status

* To capitalize on an interest in home improvement

* To be one’s own boss

Identifying the true reason for pursuing real estate investing as a means to profit will keep investors motivated. Writing it down will solidify their resolve and become a guiding reference point.

Investors should then apply this goal to the following points:

* Cash: How much cash can I get out in the refinance?

* Cash flow: What will the cash flow be?

* Equity: How much will my net worth increase after I purchase the property?

Investors should run the numbers to add up these three items for every property they are considering. In other words, an investor may have ,000 equity in a property. The cash flow is break even. This means that the return on the equity is zero.

A property in a case like this should be sold. The equity should instead be invested somewhere else to get a return on the money.

Real estate goal setting is a powerful tool for keeping investors on track. real estate investing efforts are sometimes fruitless and even produce loss due to the emotion involved. Goal setting can help offset this variable. It offers an objective perspective when comparing the bottom line with the emotions surrounding an investment.

It also helps ensure that an investor’s work isn’t for naught. No investor wants to work at climbing the
ladder only to realize it’s leaning against the wrong tree.

Lolita Sheriow is a Real Estate Investor and Network Marketer who works from home and helps people nationwide expand their real estate investing strategies and techniques. Find out how and get a FREE report at http://www.buybigprofithomes.com/

Article Source: ArticleSpan

Should Real Estate Investors Trust the Numbers?

Should a real estate investor blindly accept the numbers about a rental property like price, price per unit, and cap rate upon which the investor is expected to make an investment decision, or should the investor question the numbers?

This is not a trick question. Of course, an investor should question the numbers, and likely will, but this article wants to go beyond that and touch upon the more subtle questions a prudent investor should be asking about the rental property.

Say, for example, that you’re told by a real estate agent about an apartment complex touted to be a great opportunity, with lots of upside potential, and in a good part of town, how should you respond? Well, none of that directly addresses the profit you might earn from owning that rental property and it appears obvious that the agent presenting that information is merely shuffling some listing agent’s data, so you clearly need to know more.

Let’s try another one. Suppose the agent describes and apartment complex as “beautiful”, what then? If you’re astute, your response will probably be similar to that of one of my investors. “Only women are beautiful,” he said, “what are the numbers?”

The point is that real estate investing is all about the numbers. Whether or not the rental property has a good location means little unless that location enables the property to command higher occupancy and rents. Likewise, terms like “great opportunity” and “lots of upside potential” are only credible when the bottom line supports it. In other words, you should expect the agent who presents you investment property also to present you with enough hard numbers to back those claims.

Okay, but beyond lofty claims made about a rental property, I’m going to suggest that you question numbers given to you from real estate professionals.

It’s not a moral issue. Most brokers are honest, but bear in mind that a listing agent often uses the rents and operating expenses supplied by the seller, and only in rare cases actually substantiates those numbers. Besides, listing agents tend to be over zealous and optimize the numbers.

Conversely, I would question a realtor trying to sell me investment real estate if he or she does nothing more than passes me information gotten from the listing broker.

For me to be satisfied I want to see more than what appears in a typical listing. I want to see before and after tax cash flows and rates of return based upon my marginal income tax rate so I can see my taxable gain or loss and underlying returns, a comparable sales report that would support the property price, a proforma income statement with revenue projections, and so on. That is, I would expect a broker to “partner” with my efforts and provide me a full rental property analysis I can compare against my investment plan.

I look at this way. If I’m going to invest hundreds of thousands of dollars and let a realtor share in the booty, the least he can do is invest several hundred dollars on real estate investment software that would provide me with the type of analysis I need to make a prudent investment decision; the least the broker can do is to care how I spend my money.

If you find a real estate agent able and willing to stand alongside helping you crunch numbers, then half your battle is won. If not, then obtain your own real estate investment software and run the numbers yourself. Remember, all the numbers associated with real estate investing are like peanuts, you don’t swallow until you crunch.

After all, it is your nest egg at stack. And come hell or high water, with or without the help of a realtor, you must be resolved to comb through the numbers on any rental income property until you are fully satisfied that you are making the wisest investment decision you can to safeguard that nest egg.

New ProAPOD Video Released, How to Email a Report

I am often asked whether or not the reports created by ProAPOD real estate investment software can be emailed. The answer is, Yes, reports created in ProAPOD real estate investment software can be emailed.

To sure you how, I just released a new video just over three minutes long that explains it step-by-step. To watch the video click here…

While you’re at it, be sure to check out all our other videos…

ProAPOD Photo Video Released

I just released a new video that covers the picture functions available in ProAPOD® Real Estate Investment Software 10.0.

Word of caution.

I am not a professional movie maker or actor and never played one on television. I am the developer of all ProAPOD® real estate investment software solutions who is just trying to keep you up to date with the latest features…so please ignore (nay, please forgive) the fact that my videos aren’t as elegant as my software.

Okay, now that I covered my misgivings, let me encourage you to watch the video so you can discover the great options available for you to include photos in your real estate analysis presentations. Photo video…

While you’re at it, you might want to check out the other videos I’ve posted on my video page at real estate investment software videos…