In this article we'll consider why serious real estate investors—those who want to make the best return possible on their real estate investments—use real estate investment software to evaluate investment opportunities.
It's fast. Good real estate investment software makes it possible to analyze cash flows, rates of return, and profitability of rental properties in minutes. This enables investors to collect the data needed for decision-making quickly.
It's precise. Good real estate software makes accurate calculations for a wide-range of returns and measures deemed crucial to sound real estate analysis. The last thing analysts should have to worry about is faulty math.
The reports are informative. Good real estate investment software creates professional-quality reports investors can confidently pass on to colleagues, partners, and lenders.
It knows what data is required. Good real estate software includes forms specially designed to gather the appropriate facts and figures about a property. This is particularly helpful to investors with little or no real estate analysis experience because they just fill in the forms and print.
It keeps the seller's data honest. Investors who have the ability to run the numbers themselves prevent anyone from making an unrealistic presentation of the property and perhaps "slipping one" by.
It's worth it. Good real estate investment software does not have to cost an arm and a leg. Anyone can create top-notch real estate analysis presentations forever for just a few hundred dollars.
Okay, now let's consider the alternative.
You can create your own spreadsheet. Excel makes it possible for anyone to mimic most real estate investing software solutions. But it takes time (lots of time) to develop the reports and calculations provided in good real estate investment software. You should ask yourself whether you are inept enough about real estate investing and Excel before you get started. Plus, remember that your goal is make a profit on real estate investment and not to shave a few bucks off your analysis presentations.
You can rely on rules of thumb. It's easy to calculate a property's cap rate or gross rent multiplier. But what about cash-on-cash return, cash flow after tax, internal rate of return, and mortgage amortization? Bear in mind that you are planning to make a huge real estate investment, so you should rely on something more meaningful than on simple calculations you can do in your head.
You can accept the seller's data. But it's never a good idea to accept property data point blank because it leaves too much room for others to embellish reality. You should always be prepared to verify the numbers you are presented about any investment opportunity to be sure that they comply with your real estate investing plan.
Once you're ready to invest in good real estate investment software you've got to know what to look for. So here are a few suggestions.
Foremost, be sure that the software is user-friendly—that you know what to do from the moment you open it. If not, be sure you have a number you can call for tech support.
Preview the reports. Are they easy to read? Do they contain all the crucial returns you will need (or desire) to make an intelligent investment decision? Are they professional quality?
Consider what rates of return you desire. For example, are you interested only in suitable returns calculated without consideration for the elements of tax shelter, or would you prefer full consideration of tax shelter? If so, then look for real estate investment software that includes calculations for things such as depreciation, mortgage interest, amortization of loan points, and cash flow after tax.
Would you like both analysis and marketing presentations? If so, then look for a software solution that will create an Executive Summary or Marketing Package in addition to an APOD, Proforma Income Statement, and Rent Roll.
You get the idea.
The important thing is to realize that real estate investing is a business and real estate investment software is a tool that will help you to grow that business wisely. And in the same way that serious real estate investors have come to rely on good real estate investment software to help them make smart real estate investment decisions, so should you.
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James R. Kobzeff is the developer of ProAPOD® -
superior real estate investment software
since 2000. Now with a Canadian version! Calculations for both monthly and semi-annual mortgage compounding! Learn more at => http://www.proapod.com
