Crowdfunding Real Estate Investments

Pooling of resources, passing the hat — call it what you will, but collaborative underwriting has probably been around for a couple of centuries. Never one to leave well enough alone, the internet has again risen to the role of game-changer, extending a global reach to individuals and companies looking for backers.

You have probably heard of the crowdfunder Kickstarter, which is a popular donation-based site, aimed primarily at creative projects. Backers who donate to such projects don’t become shareholders or expect any financial return. They may be more akin to patrons than to investors.

But investment-based crowdfunding sites have also emerged. I can’t say that I knew much about them, but I recently attended the annual Yale Alumni Real Estate Association’s National Conference where one of the sessions was devoted to this subject, with presentations by two of the top players in this field: Daniel Miller of Fundrise and Rodrigo Nino of Prodigy Network.

Although this method of funding real estate projects may be just a blip on the radar at present, it does appear that more and more real estate crowdfunding sites like these are cropping up and deals actually are getting funded. So just what is this all about and how is it supposed to work? I’ve tried to take what I learned at the Yale conference and have expanded on it a bit; and so, the following are a few observations from an interested outsider.

For the Project Developer Seeking Financing

Among the top arguments for crowdfunding a real estate project are these:

  • It offers an opportunity to get a project financed more quickly and easily than it would through more conventional channels.
  • By eliminating some of the middlemen usually involved, it can lower transaction costs.

The arguments seem credible, since most bank and institutional financing has become a test of endurance. Some crowdfunding sites offer both debt and equity investments, and most are quite specific as to the types of properties with which they deal. The process may not be entirely a walk in the park, because the typical site screens developers by taking them through a rigorous application and evaluation process.

For the Investor

One attraction for investors is that they typically don’t have to pony up a huge commitment to participate in a single project. Hence, they could spread smaller chunks of cash among several properties or even several developers, thus spreading their risk.

There would appear to be a few murky areas, however. Successful commercial real estate investors generally apply a laser focus on their due diligence. In a crowdfunded scenario one should expect that the developer will be doing that, carefully vetting the property and supplying detailed financial information and projections to the potential investor; but how much detail will they provide and can the investor independently verify that information? With the proliferation of crowdfunding sites, will there be consistency among them in the amount and quality of data they provide? A prudent investor must be certain at least to take a very careful look at the track record of the developer.

Investing through crowdfunding may have particular appeal to inexperienced investors. They should be particularly cautious, understanding that there is not likely to be any liquidity, that their cash could be tied up for a considerable time, and of course that there is no guarantee of an acceptable return or of recovering the initial investment. Sometimes deals simply fail.

How is Crowdfunding Even Possible?

It should come as no surprise that there are plenty of regulations that govern these investment offerings. It appears that most of the crowdfunding sites have been operating under SEC Regulation D, which limits general solicitation and restricts participation to “accredited investors.” These generally include investors with a net worth of at least $1 million (not including the value of their home) and income of $200,000 for the past two years, or $300,000 together with spouse.

One site, which at present seems to be unique, is Fundrise. They have been able to use an obscure SEC Regulation A that allows non-accredited investors to participate in community-based deals with investments as little as $100. There is apparently plenty of hoop-jumping for them to deal with, since this regulation also involves state approvals as well as a limit on capital that can be raised in a 12-month period.

In 2012, Congress passed the JOBS Act (Jumpstart Our Business Startups)  and in September 2013, Title II of that act became effective. Title II allows general solicitation, but only to accredited investors.

Title III of the JOBS Act is called the “Crowdfunding Exemption.” Expected to work its way through the SEC rule-making process sometime later this year, it would allow non-accredited investors to participate in equity offerings. The proponents of investment crowdfunding see this as the real game-changer.

Conclusion

Crowdfunding could revolutionize how real estate investments are financed, but not everyone is convinced that it is the Next Big Thing. A recent BusinessWire article cites a number of concerns, including one that this writer has seen elsewhere:  “Will crowdfunding expose innocent, small-time investors to fraudsters and scam artists?”

Both real estate crowdfunding itself and the regulatory environment that will govern it are in their infancy, so how this will all play out must be a matter of conjecture for now. On the one hand, the real estate industry — to put it as politely as possible — has a long history of being resistant to change. On the other, technology in the 21st century has had a habit of sweeping away things that we confidently viewed as permanent cultural fixtures. To be convinced, I need only to rummage in my basement to dig out my old rotary-dial wall phone and my case of incandescent lightbulbs.

Time will tell the story.

—- Frank Gallinelli

Read more in the recent press about real estate crowdfunding:

Crowdfunding’s Latest Invasion: Real Estate

How Crowdfunding Could Reshape Real Estate Investing

The Big Five in Real Estate Crowdfunding

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Copyright 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
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Residential or Commercial? What Type of Property is Right for You?

We’ve discussed this topic before, but it seems never to get old. Every day we encounter folks who are getting started in real estate investing, and who want to figure out the best path for them: residential property or commercial? Will residential require a lot of hands-on management? Is commercial really a different game? Is financing similar for residential and commercial?

Of course we recognize that there isn’t one type of property that is right for everyone, but we think our discussion of the pros and cons of investing in each type can help you make a personal choice that you can be comfortable with.

And so… we’ve refreshed our earlier article and invite you to visit it here:

Investing in Real Estate: Should you Buy Residential or Commercial Property?

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Copyright 2010, 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
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Results of our first real estate investor survey

We would like to thank all those who took a few minutes to respond to the first of our investor surveys; and we’d like to share the results:

Q1: What type of real estate investment property do you buy, or plan to buy? Check all that apply.

Multifamily, 2-5 units 52%
Apartment Building, >5 units 54%
Mixed-Use 20%
Retail Strip Center 26%
Retail, Larger Shopping Center 9%
Free-Standing NNN 4%
Office Building 30%
Self-Storage 24%
Industrial 7%
Hotel 9%
Other (please specify)
    Single-family 22%
    Land 2%

Keep in mind that we asked respondents to “check all that apply,” so that is why these don’t–and shouldn’t– add up to 100%.  The results show that many investors buy more than one type of property.

Clearly, residential property was more popular than commercial, and what may have been a bit surprising to us was the number of “write-in” votes for single-family.  Combining these with the 2-5 unit multifamilies, it would appear that many investors are currently leaning toward smaller residential–at least among our pool of survey-takers. This may be a reflection of the inventory of homes that ended up in foreclosure, and could perhaps be purchased at prices that woulf make them attractive to investors.

Q2: Thinking about your cash flow projections for your potential investment, why do you make those projections? Check all that apply.

To decide if I believe the property is worth considering. 87%
To help me to decide on an appropriate offer price (or selling price). 78%
To show to a lender in support of my request for financing. 61%
To show to a potential equity partner. 48%
I don’t make cash flow projections. 7%

We’re certainly not surprised to see that the great majority of  investors want to vet their deals and scrutinize the pricing by performing a cash flow analysis; and also that a good pro forma can bring you some credibility when dealing with a lender.

We find it very interesting that almost half of our respondents said they use a cash flow projection to show to a potential equity partner. That would certainly seem to suggest that a lot of investors are pooling their resources in order to do deals. Just anecdotally, we believe we’ve seen a lot more investment partnerships since the 2008 meltdown, probably because of the difficulty that many have encountered finding financing.

One general note: Before the statisticians in the audience take us to task, we should impose a caution in regard to interpreting these survey results. A truly scientific study would have avoided what is called “self-selection,” where responses come strictly from those who are willing to volunteer their point of view.

Nonetheless, we believe this simple and informal survey offers a fairly good window into investor thinking.

We would be very interested in hearing your take on these survey results. We hope you’ll send us your comments.

And finally, we didn’t forget about that bonus:  We promised to give away three signed copies of What Every Real Estate Investor Needs to Know About Cash Flow… , and that’s up next.  This week we’ll pick three email addresses from among those who opted-in to the drawing and contact them so we can send them their copies.  If you participated, please keep an eye out for that email from us.

 

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Podcast: “Learn the key principles to effectively analyzing and evaluating your real estate deals”

I had the pleasure of recording a podcast recently with real estate entrepreneur Kevin Bupp. We discussed what I feel are some of the key principles that every real estate investor ought to understand — and so, I invite you to listen to that podcast here.

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NPV, PI, IRR, FMRR, MIRR, CpA – Stirring the Alphabet Soup of Real Estate Investing, Part 4

In the previous three installments (review them here if you like: Part 1, Part 2, Part 3) we covered the most common methods of measuring the return on a real estate investment. There is yet another that is a bit more esoteric and complex; so if you’re up for it, grab your double espresso and jump in.

Capital Accumulation Comparison–CpA

Let’s say that you’re contemplating a purchase and want to decide between two properties, one requiring a cash investment of $100,000, the other $60,000. Clearly, you must really have $100,000 in hand if you’re considering both options. To make an “apples-to-apples” comparison of these two mutually exclusive scenarios, you should invest the entire $100,000 no matter which property you choose.

If that’s the case, then when you evaluate the option that requires only $60k for the property purchase, your analysis should involve both the return you expect to receive from that property plus the return you expect from the $40k cash that you were free to invest elsewhere.

Likewise, if you project that you will hold one property for 4 years but the other for 5, you should look at the after-tax proceeds from selling the 4-year property and take into account the return you could earn with those proceeds if you invest them elsewhere for one more year.

In short, you are saying that a straight-up comparison of these two investment alternatives should presume that you commit the same amount of cash in each case, and that you keep that cash committed for the same length of time.

A Capital Accumulation Comparison (CpA) is one way you might address these issues. This method allows you to compare investment alternatives not with a rate-of-return measurement but rather in terms of dollars, even if those dollars don’t remain in the original property investment.

Consider two mutually exclusive investment opportunities, Property A and Property B, with the following cash flows:

Cash Flows

To perform a Capital Accumulation comparison, you begin by eliminating the negative cash flows as you saw in the MIRR example above. This time you choose a safe rate of 4%.

Capital Accumulation Comparison

Next, you compound all positive cash flows to the end of your holding period, Year 5. You decide on a reinvestment rate of 9%.

CpA Property A

CpA Property B

You have one last issue to deal with: Clearly, you must be starting out with $100,000 cash in your pocket or you wouldn’t be considering the purchase of Property A. If you decide to buy Property B, then you’ll have $40,000 left over to work with. To make a true comparison of these alternatives, you need to commit the same amount with either choice. You do that by assuming that you’ll invest the remaining $40k for the 5-year holding period; for consistency, you may use your reinvestment rate of 9% as the expected return on this cash.

Your final series of cash flows, after discounting negatives and compounding positives, looks like this:

CpA Comparison calculation

Let’s have an instant replay of what you did here, first using just Property A. If some of this is starting to sound familiar, you’ve probably noticed that this process of computing CpA looks a great deal like what you saw for FMRR in the last insatllment of our series, except instead of looking for a rate of return you’re looking for a total accumulation of cash.

In the example above, you first needed to eliminate the negative cash flow of $15,000 that occurred in year 3. You did that by discounting it back at 4% per year until its discounted amount could be absorbed by an earlier positive cash flow. In this case you had to go back only one year. Negative 15,000 discounted at 4% for one year is negative 14,423, which could be absorbed by Year 2’s positive 15,000, leaving a net for Year 3 of the difference, 577.

(If you had some amount of negative cash flow that you could not absorb into positive cash flows, you would discount the negative cash back to Year 0 and add it to initial investment amount, again as described in FMRR.)

Next you compounded each of Property A’s positive cash flow forward to Year 5 at the reinvestment rate of 9%. Why five years, when you expect to hold the property for just four? Because you’re comparing Property A to an alternative (and mutually exclusive) investment that you would hold for five years. So to keep the alternatives in balance you need to keep your EOY 4 money in play (at the reinvestment rate) for the same amount of time as in Property B.

When you were done, your entire accumulation was a combined negative 100,000 and positive 281,287, or 181,287.

Property B worked the same way, but required one additional step: Equalizing your cash commitment by investing elsewhere the $40,000 that was not required to purchase Property B. By investing that $40k, you were able to compare two investment scenarios, each requiring $100k of cash.

CpA Comparison calculation

As you can see, the total capital accumulation for Property A ($181,287) is greater than that for Property B ($163,815), so Property A is your preferred choice according to the CpA method. Interestingly enough, if you were to do an IRR on the original cash flows, you would find that Property B, with 33.7% is greater than A’s 30.0%, while the B’s MIRR of 25.2% wins by a nose over A’s 24.8%.

Why might that be so? The answer should lie in one or both of the “equalizing” factors: holding period or initial investment. Perhaps in this example $40,000 is working harder for you invested in Property A than it is when invested independently if you chose Property B.

As promised in Part 1 of this series, we’ve really stirred the alphabet soup – NPV, PI, IRR, FMRR, MIRR and CpA. Is CpA a silver bullet? Indeed is any one of these the only measure you’ll ever need?

Probably not. They all require judgments on your part – about cash flows, resale proceeds, perceived risk, and sometimes discount rate, safe rate or reinvestment rate. In regard to any specific deal you may be more confident about some of these judgments than you are about others, and that confidence – or lack of it – can influence how much you want to rely on any one metric. The smart investor will understand them all, consider them all, and use the one (or several) that seems best suited to the actual investment decision at hand. After all, you wouldn’t keep just one kind of screwdriver or one size wrench in your basement toolbox. Do no less with your investments.

—Frank Gallinelli

P.S. If the calculation of CpA is not your idea of fun, RealData offers an add-on module to its Real Estate Investment Analysis, Professional Edition software that will do the heavy lifting for you.

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Need to calculate Capital Accumulation Comparison (CpA)? Use the Comparison Add-on for Real Estate Investment Analysis, Professional Edition.

Copyright 2008, 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.

 

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NPV, PI, IRR, FMRR, MIRR, CpA – Stirring the Alphabet Soup of Real Estate Investing, Part 3

At the end of Part 2 of this series of articles we had just reached what appeared to be an epiphany of sorts. Earlier we had looked at Discounted Cash Flow, Net Present Value and Profitability Index, and found them almost but not quite up to our needs as real estate investors.

We then turned Discounted Cash Flow on its head, solving for the rate rather than the Present Value. That rate – the Internal Rate of Return – looked like it provided a good measure of investment return and an excellent way to compare alternative investments because it was sensitive to the interplay between the timing and the magnitude of our investment’s cash flows.

That’s when I issued a “Not so fast” admonition, with the unabashed purpose of luring you back for the next part of this discourse.

All right – what are the problems with IRR and how do we deal with them?

The Problems with IRR

Internal Rate of Return works well in many situations, but in not quite all. In the typical investment, you expect to have a single negative cash flow on day one (your cash outlay to acquire the investment) followed by a series of periodic positive cash flows. The last of these will be the proceeds of sale when you finally dispose of the investment. In such a scenario, IRR usually works pretty well.

The wheels can start to come off, however, when you forecast the possibility that this property may not follow the script. Particularly vexing is a situation where you expect to encounter some negative cash flows in your investment timeline.

Perhaps you’re projecting a significant increase in the interest rate on your financing; or you expect to have some major (but unfunded) repairs; or you want to play “what if?” to see what will happen if you lose an important tenant. Any of these possibilities could throw your projected cash flow for a future year into negative territory.

That’s where the arcane math behind IRR throws you a curve. In general, if you have more than one change of sign in the series of cash flows (and you must include the initial investment as one of the cash flows), then you may encounter “non-unique” results. That’s a polite way of saying the same set of facts can give you more than one answer, which clearly is not helpful.

Consider this example from the classic text, Mastering Investment Real Estate (Messner, Schreiber, Lyon and Ward):

Year 0 Initial Investment: (25,000)
Year 1 Cash Flow: 150,000
Year 2 Cash Flow: (275,000)
Year 3 Cash Flow: 150,000

In this series of cash flows, the sign changes three times; therefore, there could be as many as three different internal rates of return, i.e., rates at which you could discount these cash flows so that their NPV would equal zero. Indeed, there are three such rates: 0%, 100% and 200%, and they’re all mathematically correct.

The IRR is of little value if it presents you with multiple solutions for the same set of data and invites you to pick one.

If IRR’s relationship with negative cash flows is occasionally dysfunctional, it doesn’t get along as well as it should with positive cash flows either. Conventional wisdom has long held that IRR assumes that positive cash flows can be reinvested, until the end of the holding period, at the same rate as the IRR itself. There are also those who assert that IRR actually makes no assumption at all as to the rate of reinvestment of positive cash flows.

For our purposes the distinction may be literally academic because in either case the IRR does not attend to how positive cash flows are handled in the real world. You will reinvest positive cash flows at the best rate you can reasonable obtain, and that rate is likely to be closely tied to the size of the cash flow. If your cash flow is large, you may be able to reinvest it in another piece of real estate. If it is small, then passbook savings may be your only option.

FMRR – Financial Management Rate of Return

You can use a modified version of IRR to deal with the problems of non-unique results and the reinvestment of positive cash flows. Back in the ‘70s (the 1970s, that is), when I was a young investor in bell bottoms, the technique was called Financial Management Rate of Return (FMRR).

This technique eliminated negatives by first discounting them back at a “safe rate” to the nearest previous positive cash flow, adding that discounted negative amount to the positive cash. If there were any negatives left, those would be discounted back to day one, also at the safe rate, and added to the initial investment. The procedure would then compound the remaining positive cash flows forward to the end of the holding period at a rate that was realistic for those cash flows. It was up to you, the analyst, of course to specify the safe and reinvestment rates.

This process would leave you with a string of cash flows on which you could perform a proper IRR, a series that included one initial outflow – a negative amount – followed by all positive or zero cash flows. Hence, just one sign change so just one answer.

For example, say that you found these among your series of cash flows;

Year 3 Cash Flow:
30,000
Year 4 Cash Flow:
(20,000)

If your safe rate were 4%, you would discount the (20,000) Year 4 cash flow back one year at that rate. The result would be (19,231). Now in Year 3 you can combine the positive 30,000 with the negative (19,231) and at the same time eliminate the negative cash flow in Year 4.

Year 3 Cash Flow:
10,769
Year 4 Cash Flow:
0

MIRR – Modified Internal Rate of Return

A some point, perhaps in the mid-‘80s, I observed that most investors and brokers were using a variation of this variation on IRR called Modified Internal Rate of Return, or MIRR. I can only speculate as to what caused this shift, but I have a theory. Microsoft published its Excel spreadsheet software with MIRR as a built-in function. MIRR is perhaps slightly less precise than FMRR, but I suspect that it is faster and demands less computing power to calculate.

The difference with MIRR is that it discounts all negative cash flows to day one rather than trying to mix and match individual negatives with offsetting positives. The variance between MIRR and FMRR is typically inconsequential.

Consider these cash flows, once again based on an example in the text by Messner et al.:

Year 0 Initial Investment:
(10,000)
Year 1 Cash Flow:
(50,000)
Year 2 Cash Flow:
(50,000)
Year 3 Cash Flow:
30,000
Year 4 Cash Flow:
(20,000)
Year 5 Cash Flow:
30,000
Year 6 Cash Flow:
250,000

If you use a safe rate of 5% to discount negative cash flows, a reinvestment rate of 10% for positive cash flows, and perform the admittedly tedious task of figuring the FMRR, you will find that your FMRR equals 19.4%. Use Excel’s MIRR function with the same safe/reinvestment choices, and you get a result of 18.0%. If you believe this difference justifies the additional time and effort to calculate the FMRR, you may want to consider switching to decaf.

It’s worth noting however that if you were to use Excel’s IRR function on these cash flows, using a “guess” rate of 20% to narrow the field of possible answers, you would get an IRR of 25.2% for these same cash flows. Clearly, the difference in this example between IRR and MIRR is quite meaningful. The MIRR yields a more conservative and probably more realistic measurement.

While MIRR addresses the chief deficiencies of IRR as a measure of return, it still comes up a bit short when you want to compare mutually exclusive alternative investments. The problem here is in accounting for both the duration and scale of your investment. Using MIRR to compare opportunities that require the same initial investment and which will be held for the same length of time seems reasonable enough — but what if the alternatives require different amounts of cash, or presume different holding periods?

That scenario will the subject of our fourth and final installment, when we examine Capital Accumulation Comparison (CpA).

—Frank Gallinelli

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Copyright 2008, 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
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The Alphabet Soup of Real Estate Investing, Part 2: IRR

In the first installment of our four-part series I introduced two important measures of investment performance, Net Present Value (NPV) and Profitability Index (PI).

Now let’s continue this review of key real estate investment metrics by looking at Internal Rate of Return (IRR). IRR is the measurement of choice for many real estate investors because it takes into account both the magnitude and the timing of a property’s cash flows.

Here is our second installment, NPV, PI, IRR, FMRR, MIRR, CpA — Stirring the Alphabet Soup of Real Estate Investing, Part 2.

—Frank Gallinelli

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Copyright 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
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Software updates: All Macintosh products, REIA Pro and Express

Today we have completed many updates which span the entire product line for both Windows and Macintosh. The changes include:

- code modification for all Mac products to accommodate changes in the new Mavericks operating system. If you are using Mavericks, then be sure to login to your customer account and download the latest release of your software. The new code fixes problems when printing both to physical printers and to PDF.

- In REIA Pro we have added PV, CFAT and Sale Proceeds after Taxes to our popular Decision Maker dashboard. We also have improved error reporting on both the Commercial Income and Residential Income worksheets as well as several bug fixes for printing and data display.

- IN REIA Express we have fixed several display issues in the Residential Income worksheet which have been reported by some users.

All of these updates are free of charge for those who have a licence for a current version of the software product. RealData maintains separate product releases for Windows and Macintosh users as part of our effort to provide an optimal user experience in each operating system.

If you need assistance with upgrading your software, please open a support ticket.

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The Alphabet Soup of Real Estate Investing

Successful investing in real estate depends to a great degree on your ability to work with some basic financial concepts.  How do you take the measure of an income-producing property? What does the terminology mean?

Allow me to continue my review of key real estate investment metrics by revisiting a four-part series where I discuss Net Present Value, Profitability Index, Internal Rate of Return, and more. I believe that these concepts aren’t difficult to master if explained in plain language, which is what I try to do here.

Here is Part 1 of NPV, PI, IRR, FMRR, MIRR, CpA – Stirring the Alphabet Soup of Real Estate Investing where I cover the first two of these metrics.

—Frank Gallinelli

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Your time and your investment capital are too valuable to risk on a do-it-yourself investment spreadsheet. For more than 30 years, RealData has provided the best and most reliable real estate investment software to help you make intelligent investment decisions and to create presentations you can confidently show to lenders, clients, and equity partners. Learn more at www.realdata.com.

Copyright 2014,  Frank Gallinelli and RealData® Inc. All Rights Reserved

The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of RealData® Inc. The material contained in articles that appear on realdata.com is not intended to provide legal, tax or other professional advice or to substitute for proper professional advice and/or due diligence. We urge you to consult an attorney, CPA or other appropriate professional before taking any action in regard to matters discussed in any article or posting. The posting of any article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.
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Using Cap Rate to Estimate the Value of an Investment Property

In recent posts I’ve been revisiting some key real estate investment metrics. Last time I discussed the finer points of Net Operating Income, and that topic should serve as an appropriate run-up to the subject of capitalization rates (aka cap rates). What are they and how do you use them?

Income capitalization is the technique typically used by commercial appraisers, and is a part of the decision-making process for most real estate investors as well. I invite you to jog over to an article I’ve written on the subject:

Estimating the Value of a Real Estate Investment Using Cap Rate

In addition, you can download Chapter 10 of my book, Mastering Real Estate Investment, which discusses cap rates and gives you several examples you can work through.

—Frank Gallinelli

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