How To Develop Free Real Estate Analysis Software You Can Use When Real Estate Investing
If you rather not invest the bucks into real estate analysis software and prefer to create your own real estate analysis solution, then I am happy to inform you that you absolutely can. Rental property cash flow, rates of return, and profitability analysis and marketing reports may very well be designed by anybody with a spreadsheet solution and the time and determination to do it manually. It requires a full committment and lots of hard work, but it is free (well, sort of if you are willing to put in man-hours for free) .
The Spreadsheet Application
1) To start with you must purchase a spreadsheet software program. In this case the most apparent selection is going to be MS Excel. MS Excel contains loads of built-in formulas and features which make it the most-widely utilized spreadsheet in the universe so you will not likely regret the investment. Microsoft Excel can be purchased on its own for about $100 but is routinely offered with Microsoft Office. MAC users will want to consider MS Office 4 or Office 2011 (Microsoft does not support MAC with Office 2008).
2) Get acquainted with the Excel application. Find out exactly what makes up a “cell” as well as ways to format the cell. You will have to determine whether the data entered into the cell ought to be regarded as textual content, a number, or percentage, and whether you’d like the number to incorporate a dollar or percentage sign, commas inserted for each 100, and how far right of the decimal point you’d like to carry your figures. Likewise you must consider such issues as background colors, borders, font-size style, and cell size.
None of this is trivial and will be extremely useful when you get started designing the documents you want to integrate as presentation material for your rental property analysis.
3) Find out the way to use Excel’s formulations. One of the great advantages of working with MS Excel is that it contains numerous functions that automatically calculate such things as PMT (a mortgage payment) and IRR (an internal rate of return) all based upon specific criteria. The only issue is that the formulas don’t routinely yield the result hoped for. For instance, for some formulations a number has to become a negative for the formula to compute accurately (which is not actually made clear by Microsoft). Consequently it’s trial and error.
4) You will have to decide upon and learn how to create the layout for the real estate investing reports you are likely to use for your analysis presentations. The overall appearance of your reports is important because you want them to convey the data in a way that anyone can understand, but you also want them to make a good impression on your audience. You can preview samples on the web to get some ideas.
5) Read and learn about VBA (Visual Basics for Applications). This is Excel’s computer language for writing procedures (macros) executed in the application. For instance, you would rely on macros to generate the toolbar, and then to do something when a particular portion of the toolbar is clicked (e.g., a picture command that would enable you to pick a photo from their computer and then automatically paste it into one or more reports).
You really don’t have to incorporate macros into your program if you choose not to learn it. But it will give you a number of benefits you cannot enjoy otherwise.
Real Estate Investing
1) Establish what data your program must include for you to produce a sound real estate analysis. In other words, how deep do you plan for your analysis to go? Are you intending to include the elements of tax shelter so you can evaluate cash flows and rates of return after taxes, or are you content to ignore taxation altogether? What about the time value of money, are you going to be considering returns such as financial management rate of return (FMRR)?
2) You have to understand the formulas for all the returns you intend to include otherwise you are sunk even before you leave port. At the very least you want to be able to compute gross scheduled income, net operating income, cash flow before taxes (CFBT), cap rate, gross rent multiplier, and cash-on-cash return. If you opt to incorporate elements that concern tax shelter, then also learn how to make the calculations for depreciation, amortized loan points, mortgage interest, and tax liability. Of course there is much more, but you get the concept.
3) You must make a decision about what reports you want to include. At the very minimum you should plan to develop an APOD and Proforma Income Statement because these provide solid details regarding both, the property’s first-year and long-term financial performance. But there are a lot of other reports you may likewise want to consider like a rent roll, executive summary, and sales proceeds report for example.
Here’s to your success, and may your real estate analysis spreadsheet serve you well.