In the beginning, when I first got interested in real estate investing and started selling rental properties and first heard some of the following terms used, I might as well have been in downtown Barcelona trying to interpret instructions on how to get to the Placa Catalunya.
They not only were unlike terms I used to sell residential property, but it took me a while to understand what they meant conceptually.In this article I want to share a few of the more commonly used and perhaps misunderstood terms with you. It never hurts to help a beginner new to real estate investing get started on the right foot and maybe to get a jump on a real estate investing business.
This is a classic choker, the one term that everyone new to real estate investing hearing it for the first time has no idea what it means. Even if you did a Google search for the term APOD, you won’t find the correct meaning for any page soon.
An APOD is an acronym for annual property operating data and is a report used in a rental property analysis. It is highly popular mostly because it is concise. On just one page, an APOD essentially gives a snapshot of a rental property’s income and expense performance for one year therein offering a real estate investor or investment analyst a good first-glance look at a rental property’s financial performance.
Gross Scheduled Income
The reason why gross scheduled income (or GSI) made this list is because it is the total annual rental income a rental property would generate if all the rentable space were occupied and all rent collected. Sometimes called potential gross income, gross scheduled income is an estimate intended to show the maximum potential income without regard to any vacancy or credit losses. Whereas a beginner considers it gross income (actual) it’s gross income (scheduled). In this case, if a ten-unit apartment has any vacancies you want to plug in a market rent for the vacant units and combine those rents with the actual rents collected for the occupied units. In other words, the gross scheduled income reflects the annual rental income as if the apartments were 100% occupied.
Before and After Tax Cash Flow
The cash flow generated by a rental property is, of course, the rhyme and reason behind investing in real estate in the first place. No prudent real estate investor is about to risk his/or hers nest egg unless the income property is profitable.
The cash flow before tax represents the amount of income left over after the loan payment is deducted from the net operating income but does not take into account the cash flow the investor would receive after adjustments are made for income taxes and tax shelter.
Cash flow after-tax signifies the cash flow available after debt service with adjustments made for income taxes and tax shelter. It has nothing to do with the cash flow left over after property taxes (as some who are new to real investing believe), but the cash flow a real estate investor can expect to receive after deductions are made for such things as depreciation and mortgage interest and adjustments are made based on whether the investor has a tax liability or loss).