More FREE Online Calculators Added to ProAPOD.com

In a continuing effort to help real estate investors and agents learn how to calculate the common rates of return for rental income properties, we have added an additional three more online calculators to our ProAPOD Real Estate Investment Software website. These are 100% FREE to use. Simply go to our website at www.proapod.com and click the Learning Center in the left menu. The from the Learning Center scroll down to Free Online Calculators and select the calculation you would like to make.

Here are the calculators we have online so far (we will be adding more over time).

  1. Cap Rate Calculator – this also includes the formula with the result (click the hyperlink to try it out).
  2. Mortgage Payment Calculator with Amortization Tablethis computes a monthly payment and the amount of interest that you will pay if you keep the mortgage full term (click the hyperlink to try it out). 
  3. PITI Mortgage Payment Calculator – this calculates your monthly payment based upon your loan payment (principal and interest), property taxes, and insurance.
  4. Gross Rent Multiplier Calculator – this also includes the formula with the result.
  5. Debt Service Ratio Calculator – this also includes the formula with the result.

As stated, this are available online and are 100% FREE to use. There is no registration required. Just go to the calculator you want to use, make a few simple entries and click the Calculate button. The results appear instantly! It’s that simple.

PLUS, each online calculator includes a handy FaceBOOK icon so you can add it to your FaceBook account. Go to our website and start using these free online calculators TODAY. And let others know about it, too. They are easy to use, designed very tastefully, and they don’t cost you a dime.

How to Select a Property Management Professional for Your Rental Property

Okay, you just purchased a rental property that you are certain will prove to be a good real estate investment, so now what? Now you must make the decision whether or not to turn the property management duties over to a professional property manager. This is especially true if you live outside the area and simply aren’t readily available to service the property, or rather not be tied down to the day-to-day operations a rental income property requires and prefer to spend your time on other activities.

For whatever reason, if you make the decision not to tackle the management duties and decide to turn your property over to a professional, then this one is for you; how to select a property management company to run your rental property.

To begin with, come to grips with the fact that a management company will probably not find it cost effective to treat your rental property with the same focus and passion as you.  Resign yourself to the fact that you are hiring a business, not a baby sitter; and that your property has a better chance to succeed as an investment when run as a business, not as one of your children. Fair enough.

Therefore, concentrate your efforts on finding a management company that will contribute to your profitable bottom line and remain diligent to carry out at least three important functions on your behalf.

1) To keep your units rented at market rents – Having an apartment full of tenants will do nothing to contribute to your profit unless they are paying the same amount of rent that other renters are paying for similar units down the street. You should expect a property management professional to keep on top of market rents and see to it that the rents charged for your rental property units do not lag behind.

2) To maintain as little vacancy as possible – This requires the ability to keep good tenants in your building and the skill to draw in new tenants in the event of a vacancy. You want to be assured that your property manager attends to issues that might concern your tenants such as repairing a faulty light switch or appliance or perhaps a neighboring tenants’ excessively-loud music. In the event of a vacancy, you want the company you hire to proactively get the unit ready to re-rent, advertise it for rent, and then become available to show it to prospective tenants.

3) To control the operating expenses within budget – You certainly want your property management professional to keep your rental property in service by seeing to it that the operating expenses are paid in a timely fashion, but likewise are responsible to maintain those expenditures within a predetermined budget. If the manager feels at any time that the budget has become unrealistic, then you should expect to be notified immediately so it can be discussed and reconsidered.

There are numerous ways to locate enough property management companies willing to manage your property for you to interview. You can look in the yellow pages or rental section of your local newspaper, ask for suggestions from a real estate agent or other rental property owners, or just drive around and look for signs. It shouldn’t be difficult to select one you deem reliable. Here’s to your success.

Financial Management Rate of Return: The Meaning and Calculation

Financial management rate of return (or FMMR) is a return that was conceived (I do believe) by the Commercial Investment Real Estate Institute (CIREI) and is taught to students seeking the CCIM (Certified Commercial Investment Member) designation. So I’ll give the CIREI the credit for the financial management rate of return with the reservation that I might be mistaken and it originated elsewhere. Fair enough.

Okay, so what exactly is a financial management rate of return, what does it signify exactly, and how do you compute it?

The idea behind the return is that investors often are confronted with selecting among alternate investments which internal rate of return (IRR) doesn’t adequately provide and therefore this return was introduced so real estate investors can make par basis (“apples-to-apples”) comparisons between investments.

According to CIREI the basic components of FMMR are based upon the notion that real estate investors seek to maximize their long-term wealth, and as a result must account for positive after-tax cash flows.

In other words, if an investor is collecting $1,000 a month from a particular rental property (after financing and taxes) it can be assumed that those funds would not be buried under a mattress. That the investor would instead option to deposit a portion in the bank and collect what the institute calls a “safe rate”, and then reinvest certain minimum amounts in excess of those funds in some other “run of the mill” investment to collect after-tax yields at what is called a “reinvestment rate”.

In this case, CIREI explains that the funds placed in a “safe rate” account are assumed to be highly liquid and can be withdrawn on a moments notice without loss of either principal or interest. Whereas the funds yielding the “reinvestment rate” are those that would not be needed to meet other cash requirements of the property (therefore not highly liquid).

The computation for FMMR is highly complex. In fact, other than my own real estate investment software, I’ve never seen any other software solution tackle it. Here’s how it works in concept.

After-tax cash flows for any particular investment are projected out over some number of years on an annual end of year (EOY) basis. First, any negative cash flows are discounted back to the initial investment at the “safe rate” (unless removed by prior positive cash flows), and then afterward any remaining positive cash flows are compounded forward to the specified year of sale at the “reinvestment rate”.

For example, say we want to compute the financial management rate of return for a property we expect to hold for five years. Our initial investment is considered EOY 0 and each annual cash flow considered EOY 1 through EOY 5 accordingly; our projected sale proceeds are included at EOY 5.

First, we must “discount” all negative cash flows at the “safe rate” until they are zeroed out by positive cash flows in the previous years or until no other positive cash flows remain in any previous year. For example, if EOY 1 and EOY 2 are both negative, then both are discounted back to EOY 0 and added to the initial investment (also considered a negative amount).

Next, we must “compound” any remaining positive cash flows to the year of sale at the “reinvestment rate”. For example, if EOY 4 is positive, then we would compound it to EOY 5 and subsequently add it to the cash flow for that year (assuming that it is positive) as well as to the proceeds we expect to receive when we sell the property in that year (also considered positive). CIREI calls this total sum the “accumulation of wealth”.

Okay, so here’s how we end up. There will be a negative dollar amount in EOY 0 and a positive dollar amount in EOY 5 (all the years in between become zero).

Here’s the schema:

EOY0  (negative) initial investment + (negative) cash flows = (negative) total dollars
EOY1  0
EOY2  0
EOY3  0
EOY4  0
EOY5  (positive) sale proceeds + (positive) cash flows = (positive) total dollars

Finally, you would compute the internal rate of return (IRR) based upon that schema to arrive at the financial rate of return.

Due to the complexity of the computation you probably want to use a financial calculator or our calculator software (which is easier) or our real estate investment software (which computes FMMR automatically as you provide the data for the rental property you might be analyzing). Whatever you choose, here’s to your success.