How to Create a Real Estate Analysis Without Real Estate Investment Software

If you rather not invest the money into real estate investment software and prefer to create your own real estate analysis, then you certainly can. Rental property cash flow analysis along with rates of return and profitability analysis and marketing presentations can be created by anyone with a spreadsheet program who has the time and patience to do it manually.

First, purchase the spreadsheet program. In this case the obvious choice would be MS Excel for PC users and even for MAC users because MAC does allow you to install and use MS products on your MAC computers. Moreover, MS Excel includes a ton of built-in formulas and features that make it the most-widely used spreadsheet in the world. So you won’t regret having made the investment to purchase it for your real estate analysis.

MS Excel can be purchased alone for around $100 but is regularly included with MS Office. So if you already have MS Office then you’re good to go.

Secondly, get acquainted with the program. Learn what constitutes a “cell” as well as how to format the cell. You will have to decide whether the data entered into the cell should be considered as text, a number, or percentage, and whether you would like the number to include a dollar or percentage sign, commas inserted for every 100, and how far right of the decimal point you want to carry your numbers. You also need to consider such things as background colors, borders, font-size style, and cell size.

None of this is trivial and will be extremely useful once you start creating the reports you want to include as presentation material for your real estate analysis.

Thirdly, learn VBA (or visual basics for applications). This is the computer language for Excel that creates macros (procedures) that do something. For example, in my real estate investment software I rely on macros to create the toolbar and then to do something when some particular portion of the toolbar is clicked (e.g. the picture command enables users to select a picture from their computer and then automatically posts it into one or more reports). Macros can also be called from whatever form you’re using by including them in Excel’s built-in functions such as Worksheet_Change ().

You probably can get by without using VBA to write your own macros, but it will automate a number of features for your cash flow analysis if you take the time to learn it.

Fourth, learn how to use Excel’s formulas. One of the great advantages of using MS Excel is that it includes a wide-range of built-in functions that automatically compute such things as PMT (a mortgage payment), IRR (an internal rate of return), and NPV (a net present value) all based upon certain criteria. The problem here (at least as I discovered when developing my real estate investment software) is that the formulas don’t always produce the result expected. Some times, for instance, a number has to become a negative for the formula to compute correctly (though this is not made clear by MS). So it’s trial and error.

Fifth, you will have to learn how to compute the essential cash flows, rates of return, and profitability numbers that are essential to a real estate analysis. This has nothing to do with MS excel. You simply need to be able to compute the key real estate investing formulas for any cash flow analysis.  For example, cash flow before tax (CFBT) and cash flow after tax (CFAT), cap rate, gross rent multiplier, cash-on-cash, break-even ratio and so forth, as well as all the elements of tax shelter.

This is imperative. If you choose to create your own real estate analysis without the benefit of real estate investment software you must understand all the cash flow, rate of return and tax formulations otherwise you are sunk even before you set sail.

Finally, you will need to know how to create the essential real estate investing reports used for cash flow analysis. My own real estate investment software creates a wide-range of reports (and charts) but at the very least you will want to create an APOD and Proforma Income Statement. Feel free to see sample screen shots of all my reports on my website. Here’s to your success; may your real estate analysis spreadsheet serve you well.

James Kobzeff

James Kobzeff has over thirty years experience as a realtor and investment real estate specialist. He is the developer of ProAPOD real estate investment software and freely shares his real estate investing articles.