How Investment Real Estate Software Makes Rental Property Analysis Easy!

Whether or not you happen to be a real estate professional who works with income-producing properties, or a real estate investor seeking to purchase multifamily or commercial property, crunching the numbers to determine a rental property’s profitability requires time and effort.

This is why real estate investing software was developed. To make rental property cash flow, rates of return and profitability analysis fast, easy, and (most importantly) accurate for those engaged in rental property analysis.

Of course, having the luxury of a good software program to do the work was not always the case before personal computers came along, so allow me to explain the types of issues that those of us engaged in real estate investing back in those early days were confronted with, and software now addresses fluently.

1) The Data – Back in the days long before computers and any sort of software programs, the numbers were crunched manually. This presented two problems. Time had to be spent doing it, and even more, you had to make sure that the data was complete and correct enough for a buyer or property owner to make a wise investment decision. Concerns about whether the data you include in your rental property analysis is complete and accurate is no longer an issue with a real estate software solution.

2) The Formulas – Given the enormous amount of data required for real estate investment analysis, you no longer are required to learn the computations and formulas to present that data accurately. With investment real estate software, you never need to learn the formulas. So you never have to worry about forfeiting the race before you even get started.

3) The Presentations – Perhaps you haven’t thought much about it, but the reports you use to present your analysis data is a big deal. The data must, of course, be complete and accurate, but at the same time it must be displayed well. The reports must be constructed so the facts and figures are easy to read and understand as well as sharp looking (especially when you plan to present them to customers, colleagues, partners, or lenders). Reports are routinely created for you automatically by real estate investing software.

4) The Spreadsheet Application – Computer hardware along with spreadsheet software programs definitely made it easier. Formulas can be programmed, reports can be formatted, and data can be entered and afterward printed out with the click of a computer mouse. Even so, as beneficial as spreadsheets were (and are) for investment real estate analysis, at the same time they present an obstacle. The user must understand the spreadsheet application properly enough to suitably create a cash flow presentation that looks good and is sure to integrate all of the correct analysis data and formulas. The frustrations of having to cope with spreadsheets becomes a thing of the past with investment analysis software.

The Software Advantage

Making use of real estate property investment software is simply a smart and cost effective opportunity for any person looking to hammer out a sound rental property analysis. It’s simple, succinct, and it will free you from a great deal of hours which in turn you are able to devote preparing for additional ways to to improve your real estate operation.

This is certainly the benefit of real estate investment software. Instead of just reinventing the wheel (or worse yet, disregarding the actual necessity to crunch the numbers altogether) brokers and real estate investors can potentially work through and evaluate multifamily property cash flows, rates of return, and profits easily and quickly. There is certainly never any formulas to figure out or reports to format because in the majority of instances the software program provides you user-friendly forms. So you merely just enter the property cash flow information and print.

The Software Checklist

1) The software product must be easy even for a novice to use.

2) It should come complete with crucial computations for rates of return, ratios and measures, along with quality reports.

3) It should include a reliable customer support policy.

4) Other functions you might hunt for (depending on your individual professional requirements) are calculations for tax shelter and time value of money, analysis and marketing reports, both USA and Canadian mortgage amortization, and the capability to apply a currency symbol other than the dollar symbol. Most softwares display a list of their features, so take a few minutes and look them over.

The good news is that it’s all out there for you to start taking advantage of. Due to the worldwide web and numerous search engines, you can locate, buy, and download a real estate investing software solution right from your computer. And best of all, given all the advantages you gain by having it, it won’t cost you an arm and a leg.

Cash Flow Before and After Tax: The Computations and Importance To a Sound Real Estate Analysis

It is common for real estate investors and analysts to conduct a real estate analysis on investment property with full consideration of tax shelter in order to compute cash flow after tax because CFAT reveals the bottom line amount an owner might receive after the Feds take their cut.

Nonetheless, even with the popularity amongst real estate investors and most analysts seeking to know the cash flow after tax, there are some who simply want to the determine the cash flow that a property will generate before taxes. Fair enough. So exactly what is the difference between these two cash flows?

Understanding Cash Flow

Cash flow is that flow of funds that result from money coming in and money going out. In other words, all the income generated by the investment property less all of the expenses required to hold the property creates the cash flow.

When you take in more income then you pay out (i.e., money is leftover after all the bills are paid) the cash flow is “positive” and therefore available for you to take off the table and allocate elsewhere. On the flip side, if you spend more money than you take in it results in a “negative cash flow” that requires you to pull money from your own pocket (i.e., outside the property account) to make up the deficiency, therefore creating a vacuum you must fill without any hope of residential cash.

What is CFBT?

CFBT is an acronym for cash flow before tax and essentially means the cash generated by the property during any specific period that does not account for the impact that property ownership has upon the owner’s tax liability. In other words, though CFBT is an income that remains after payment for operating expenses and loans, it will have to be declared as “income” by the owner to the IRS and therefore is subject to taxation.

Here’s an example of how to compute it.

If a rental property produces a yearly gross operating income (i.e., rental income less vacancy allowance) of $54,720, with annual operating expenses of $21,888 and an annual mortgage payment of $24,174, then the annual cash flow before taxes (still subject to taxation) would be $8,658.

What is CFAT?

Cash flow after tax in essence means that the cash flows generated by the income property have been adjusted for taxes and as such does take into account any income tax liability that the owner encounters by reason of operating the property. The computation is clear-cut: Cash Flow Before Taxes less Income Tax Liability equals Cash Flow After Taxes.

Before we look at an example let’s consider what income tax liability is and how it gets computed.

Tax liability represents the amount of income produced by the property that is subject to taxation. In this case, the property’s net operating income (i.e., income less operating expenses) is first converted to taxable income. This is accomplished by taking the net operating income and deducting for depreciation, mortgage interest, and amortized loan points. Then the taxable income is multiplied by the investor’s marginal income tax rate (i.e., combined fed and state) to calculate the investor’s income tax liability.

Okay, let’s consider the following example.

Let’s assume that the property in question has a net operating income of $32,833, that the allowable deduction for depreciation taken that year totals $11,710, and based upon the current financing that deductions were taken that year for interest expense totaling $20,048 and amortized loan points totaling $112.

1) To begin with, we must first determine the taxable income. We do this by taking the net operating income of $32,833 and subtracting the total deductions taken of $31,870, which in turn results in a taxable income of $963.

2) Next, we compute the investor’s tax liability. We do this by multiplying the taxable income produced by the property by the investor’s marginal tax rate (which we’ll say is 38%). Therefore, 963 x .38 equals a tax liability of $366.

3) Lastly, we solve for the cash flow after tax by subtracting that tax liability of $366 from the cash flow before tax (or CFBT) of $8,658. So we take $8,658, subtract the $366, and we have determined that the cash flow after tax (or CFAT) is $8,292. It should be pointed out, though, that when the tax liability is a negative amount it would mean that by owning that property for that given year the investor lost money and is entitled to a tax write off. Therefore that loss (which equates to a tax savings) would be added to the cash flow before taxes.

Okay, now compare what the CFBT was to the CFAT so you can understand why this is important to real estate investors. Whereas before taxes, we were seeing a cash flow of $8,658, after the Feds take their cut we see $8,292. Granted, not that significant from our example, but you get the idea. There may be times when there is a significant difference. Therefore you would not want to invest in a rental property without full consideration of what the tax implications might be by owning that property.

ProAPOD Real Estate Agent Software Updated

ProAPOD Agent 6 has been updated and is available for download. Customers currently using this  real estate agent software solution simply need to login to their account to obtain this update. You will find the download under Updates.

What’s new in this version.

1) The flexibility for you to “step” revenue projections.

In the previous version of this real estate software solution you were given an opportunity to appreciate rental income, other income, and operating expenses on an annual basis for the revenue projections displayed in the Proforma Income Statement but not given the opportunity to “step” those values. For example, in the previous version if you entered a 3% appreciation for rental income, the software would automatically compute a 3% increase in rental income for year 2, again in year 3, and so on for each and every year of the ten years displayed in the Proforma Income Statement.

This software update now gives you the option to “step” (and even hold the value). Say you prefer not to appreciate the income until the third or fourth year and want to “hold” that value for all subsequent years (i.e., without further appreciation for the years remaining), now you can. Or, if you want to appreciate the value at 1% (say) for years 2, 3, and 4 but would like to appreciate it at (say) 2% starting in year 5 and then hold that value for the remaining years you can. In other words, you can add one “step” in the rental income, other income, or operating expenses in any year at the rate you select, and then either have that value continue to appreciate or not appreciate for the remaining years.

We did this by adding a “method” selection to the “Step the Growth” portion of the Proforma form. In this case, you have the option to select either “annually” or “one-time” for any growth in rental income, other income, or operating expenses you want to make for any starting year. ProAPOD will in turn compute the growth at the rate you desire in the starting year you select and then will either increase it again at that rate or hold that value for the subsequent years based upon your “method” selection.

The benefit to you is that you now have more control over your revenue projections and can create a cash flow analysis with much more flexibility then before.

2) Other Income will now display on the APOD when no Rental Income is shown.

The previous software solution did not display a value for “Other Income” in the APOD unless monthly rents for the units were also provided in the Income form. So we made the adjustment for the APOD to show any “Other Income” values computed whether or not monthly rents are entered. This makes the APOD more consistent with the Proforma Income Statement.

3) The Price Analyzer was added.

The Price Analyzer is an extremely helpful tool when you want to quickly determine what the cap rate, gross rent multiplier, and cash-on-cash return would be at a specific property price; and likewise, what the property price would be based upon a specific cap rate or gross rent multiplier.  This tool became non-functional about a year ago when we introduced the Canadian amortization option to Agent 6 (an error message appears when you try to open it, sorry) but now is fully operational in this update.

We did, of course, check this software solution after making the update to assure that every thing is correct. But we are human and might have missed something. So contact us if you discover an issue that needs to be fixed and we will fix it immediately.

Are You Trying to Find Good Real Estate Investment Software?

In case you happen to   be a real-estate investor or maybe real estate professional seeking to create the cash flow, rates of return, and profitability related to rental real estate properties with your own Excel spread sheet and have become frustrated by the proper process and consequently are set to buy high-quality real estate investment software, you then fall under one or more of several groups.

1) You designed your own individual spreadsheet but are feed up trying to learn how to calculate all of the formulations

2) You are not familiar with the most important formulas

3) You’re uncertain that you’re including all of the very important measures and rates of return important for an effective rental property evaluation

4) You’re uncertain precisely what measures and returns to normally include

5) You are not familiar with enough about Excel to create professional-quality reports you would feel self-confident to present to customers, lenders, or business partners

6) You rather make money on the deals than put in the time to figure out how to make top quality presentations

7) You rather generate revenue offering investment property, not wasting your time at a computer trying to develop an application for Excel that might help you sell investment real estate

8) You have decided to make use of the “wheel” somebody else has developed rather than continuing to invest any time and effort making an attempt to re-invent the wheel

9) You just do not have the time for you to fritter away any further

Please believe me. Having marketed real estate investment property as an agent, broker, and investor for the past thirty-years I understand. Even though spread sheet applications like Excel give outstanding functions that make it doable for nearly anybody to create their own rental property evaluation solution, it does call for some learning and an ample amount of effort and time. Plus, to make it most meaningful, you also need an effective knowledge of real estate investing nuances.

When I created my own real estate investment software, I pretty much had about thirty years expertise doing business with income-producing property and real estate investors. Consequently it wasn’t an issue for me of possibly not knowing the formulations for the rates of return and measures necessary to create a smart and professional income property presentation. Excel, then again, was quite a different situation. And I will have to acknowledge that it took me numerous hours to master it.

Alright, so why did I? It surely was not my very first option. At first I purchased two different real estate investment software applications without even a thought about creating my own software application. But after discovering several weaknesses inside the two programs I just felt that I could get what I needed only by developing my very own application.

But I digress.

This particular brief article is not about me, it happens to be about you. And your basic need to purchase an effective real estate investing software solution that can generate the cash flow, rate of return, and profitability analysis and reports to supplement your real estate endeavor. And the very good news for you personally is that you will be able to. Thanks to the internet you can actually find, purchase, and download an investment software solution without leaving your desk. Plus, it doesn’t need to cost you the birthright to your first child. You can be up and running in minutes for around two hundred bucks.

Here’s some guidance. Foremost, make sure to buy the software program that you will need. In the event you plan to work with investment real estate only casually then you may not require an application that includes all four elements of tax shelter. Should you be a lot more active in real estate investing and are seeking to build up or grow a real estate investing business then most definitely acquire a program that’s going to compute taxes. Also, be sure that the program includes a marketing package or executive summary if you plan to market rental property in addition to evaluating it.

After all, regardless what anybody says, good real estate investment analysis software is good only when it can fulfill your expectations and support your business demands.

How to Start Real Estate Investing

Many people are turning to real estate investing with the expectation of establishing a new method by which to earn money. A few make an investment of because they are tired of their current livelihood and have set their sights entirely on becoming a full-time investor and founder of their own real estate investment enterprise; others only want to supplement their net income (perhaps in expectation of their golden years).

Whatever the reason, thousands of people have become  real estate investors in the past several years and are achieving their  goals. If you want to take advantage of this industry, you should  consider getting started today.

Real estate investing success is  not guaranteed, but at the same time, becoming an investor is not  difficult to do if you develop a plan and stick to it. Obviously, you  must decide on how money you’re willing to risk on any investment, what  types of properties you want to invest in, what rates of return you  desire, is your plan to fix and flip property or are seeking to hold  them as rentals, and so on. Moreover, consider carefully whether you  will be able to devote the time to it along with handling the added  stress.

If all systems are “go” and you are adequately prepared  with a reasonable plan to start real estate investing, begin with  caution. Do everything in your power to minimize the risk for the first  property you purchase. Getting off to a good start is a great way to get  your feet wet and helps ensure that your investing career is on track.  Don’t expect to make a ton of money on your first investment, but be  sure you crunch the numbers before you purchase and are certain you can  make a profit.

Along these lines, it is highly recommended that  you purchase a good real estate investor software solution to help you  crunch the numbers. If you are proficient with spreadsheets, you can  develop your own solution, but given the affordability and depth of  rental property analysis provided in some investment software solutions,  you would be wiser to purchase the software and to invest your time  into finding profitable properties.

Becoming an estate investor may be the best move that you ever make because there is money to be  made in the real estate industry. But you must determine what type of  investor you are going to be, understand what it is you hope to  accomplish, consider all the risks, and then act. At the end of the day,  real estate investing can indeed become the rewarding experience you  desire.

What You Can Do to Help Assure You Purchase a Profitable Investment Property

Investment property is not like the real estate investment you may make whenever you acquire a residence. A your home is where you dwell, raise  family members, and interact socially with the neighbors; so you would definitely desire an appropriate floor plan, outstanding school district, and amiable local neighborhood. Investment property however is fundamentally is not any of those things because real estate investing essentially boils down to numbers.

Consequently, as a real estate investor with an eye toward revenue, be less involved about whether or not the building is where you would pick to live (because you possibly will never live there), and rather take into account the funds you might make for your loved ones or as a supplement for your retirement by owning the property.

Here’s the point.

A profitable real estate investment does equate to your standard of living. What matters most for you as an investor is what tenants think about occupying your property. That is, are folks prepared to pay the rents you will charge for them to reside there? If so, and you did your cash flow evaluation properly, you may possess a money-maker; if not, you could have lost your daughter’s college tuition.

Enough said. Here’s what you can do to help assure that you make a worthwhile real estate investment and purchase a profitable investment property.

1) Do a comparative marketplace analysis. You need to know what similar rental properties have already been selling for within your nearby marketplace. You don’t want to acquire an apartment complex or office building for much more than what has recently offered (inside the last six months, or so) given comparable location and condition unless you have a justifiable reason to do so.

2) Compare cap rates. In this case you’re not examining price per unit or square foot, but desire to know how the net operating income measures up to the asking price. Divide your topic property’s net operating income by its sale cost to compute its cap price after which compare it to cap rates of comparable sold properties. If unsure, consult a nearby real estate professional or appraiser, or perhaps even ask a real estate expert to step in and help you. In any situation, cap charges might be a great indicator of profitability, so unless of course you anticipate upside within the property’s rental income you might not desire to invest in a property that has an unfavorable cap rate in comparison to the local market.

3) Cash flow before taxes. Cash flow is really what you pay for when you buy investment real estate. But cash flows before taxes don’t reveal what you will collect after you pay your income taxes. So you should determine what you might collect after income taxes before making a real estate investing decision

4) Cash flow after taxes. This represents what remains as a result of owning the rental income property after the Feds are paid. In this case you should look for a positive amount unless your objective is to have a tax write off or maybe anticipate a huge return due to appreciation when the property is subsequently resold.

5) Rate of return. You can find numerous returns you are able to compute to help you determine whether the property is lucrative enough for you to make the investment. Cash-on-cash, internal rate of return, and financial management rate of return are just some typically utilized by investors. There is certainly real estate investment analysis software that will make these calculations for you, or you can turn to a professional for assistance if you are in the dark here. The point is not to ignore the rate of return you expect by owning the property because it does gauge whether or not your investing objectives are met and in turn enables you to compare it to other investment opportunities under consideration.