Ask any real estate analysis software developer about the best program available and, naturally, you will get a resounding, “Mine is”. Fair enough. After all, a lot of blood, sweat and tears go into the development of a real estate investing program. So not unlike the patience we afford to a proud father publicizing that his child is remarkably special, we should be willing to give all software developers a pass; at least once.
Okay, that’s enough love to get the birds chirping, so let’s get on target: How do you find the best real estate analysis software to meet your particular objectives?
Namely, it depends on what you hope to accomplish. That is, are you willing to stick with the basic essentials for your rental property analysis and eliminate the more robust elements for time value and tax shelter; or are you prepared to take the plunge and go for an in-depth analysis with all the trimmings?
Here’s what I mean.
The return that real estate investors covet most is cash flow. This is the essence of real estate investing: that what investors really are purchasing when they make an investment is the cash that the property produces. If not on a monthly basis, or maybe not even on an annual basis, then at the very least, at the end of the day when the property is sold, they will fully expect to collect some amount of money that exceeds the amount they invested; and this is cash flow.
But cash flows are not created equal (at least not to an investor). Because there is income, and then there is income after Uncle Sam takes a bite out of it. In the world of real estate investing this unavoidable event results in what is known as cash “before” and cash “after” taxes; or CFBT and CFAT respectively.
A good real estate analysis software solution that provides only the basic elements will enable you just to determine the former CFBT whereas one that provides for the elements of tax shelter will allow you to also consider the latter CFAT.
So you must decide how far you want your rental property analysis to go. It’s probably safe to start with the basics, but if you’re serious about investment property, you should also plan to upgrade to the more robust features in the future.
The same is true for time value of money. In this case, when the real estate analysis software does make the computations for time value you can also measure cash flows in light of “when” they are received as well as the “amount” received.
This is important to investors because there is a value of money associated with time, otherwise characterized as the “purchasing power” of money. This requires little explanation because as a consumer you know that $20 five years ago purchased you more gasoline than it does today (i.e., the purchasing power of the exact same amount of money was affected over time).
Now take that idea and apply it to the thousands (perhaps hundreds of thousands) of dollars an investor is going to shell out to purchase an apartment building and hold maybe for five years. There really can be no true measurement of profitability by owning that particular rental property without considering the time it will take for the investor to collect his earnings.
In this case, prudent investors look at such returns as internal rate of return, net present value, and financial management rate of return when making an investment decision; and a good rental property analysis program with the elements for time value typically computes these returns.
This one-two punch of tax shelter and time value will cost slightly more than the basic elements, but the best real estate analysis software you can buy will best satisfy your objectives. I tend to believe that real estate agents who primarily sell residential properties and are merely looking to get started with investment real estate can do quite well without these more robust elements (at least initially). Whereas those more engaged who are looking to build an ongoing real estate investing business should have these features.
The bottom line, then, is that “best” is not what the developers say about their program, the best real estate analysis software you can purchase by and large depends on what is best for you.
Here’s to your real estate investing success.
