Tag: real estate investment software

NEW Version 20 of Real Estate Investment Analysis Pro Edition Software

We’re very excited to announce the release of new Version 20 of our Real Estate Investment Analysis software. This application has been the go-to solution for thousands of income-property investors since its first release in 1982.

(No, that’s not a typo. We’re proud to report almost four decades of enhancements based on users’ feedback.)

Version 20 has big new features and a whole new outlook on both development and investment properties. It has you covered on all fronts — buy and hold, build and hold, fix and flip, value-add — now you can model them all with one software program.

At its core, Real Estate Investment Analysis (REIA) is income-property investment analysis software for all who deal with commercial or residential income properties: individual and institutional investors, developers, brokers, lenders, accountants, portfolio managers, financial planners, builders, and architects.

It helps you make detailed income and expense projections, before- and after-tax cash flow calculations, key ROI measurements, partnership analyses, and a great deal more.

New functionality in v20 brings you month-by-month development cash flow planning, with drawdown construction loan for value-add, renovation, even construction from the ground up. Evaluate the development phase, then see how holding the property produces returns over time.

Get the full scoop here about new version 20.

Copyright 2020, 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.

The RealData Software Menu — A Tool to Streamline Your Work

Have you ever had to scramble around a large DIY Excel model to find some key piece of information? Or churned out a ream of paper trying to format a report that a human could actually read?

We’ve all been there. And that’s why we built a unique menu that automatically adds itself to Excel when you run a RealData program.

In this video, we’ll show you how you can use that menu to streamline and simplify your real estate analysis work when you’re using RealData software.

Click here to watch.

In this video, we’ll show you how to use the custom menu that we add to your Excel toolbar whenever you’re using RealData software. It can really make your job a lot easier, especially when you’re working with a powerful program like our Real Estate Investment Analysis, Pro. Edition.

This is the third in our series demonstrating key features of RealData’s software for real estate investors and developers. More to come.

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Copyright 2020,  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.

Leverage the Power of Excel to Extend your RealData Software

In our last post, we introduced our new series of short video that are designed to highlight some of the key features of our applications and help you get the most out of your RealData software. In that video we showed you the how REIA Pro could be used in any of three different modes — a detailed, long-term analysis; a quick analysis; and a short-term view, ideally suited to fix-and flip.

RealData software for real estate investors use Excel as their engine, so they offer you a familiar landscape on which to work. But you can easily go further by expanding on our products to customize them for your specific needs. In this second video, we show you some of the ways you can leverage the power of Excel to extend the functionality of RealData software.

To watch now, just click here.

And stay tuned for our next video, about using the custom menu that all RealData products add to Excel to make your work easier.

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Copyright 2020,  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.

New Lease Renewal Assumptions feature for REIA Professional

Making assumptions and entering data about commercial lease revenue — especially rollovers — was often a tedious undertaking. Until now.

Enter our latest game changer: REIA Professional’s Lease Rollover Assumptions

What is it?

Our new Lease Rollover Assumptions feature (LRA) is a way for you to store sets of parameters about different commercial lease rollover scenarios, parameters which you can use over and over when entering tenant information in REIA Professional. What is the probability that a current tenant will renew? How long do you think the space will be vacant if a tenant chooses not to renew?

Build your assumptions sets, add your tenants, and apply the LRAs. Done.

You rely on our products to crunch the numbers quickly and accurately so you can make the best and most profitable commercial investment decisions. LRA brings you a whole new level of power and speed.

How it works

First, create a set of assumptions on the new LRA worksheet.  Enter values for months vacant, rollover probability, new and market rent, etc.

lra4

Then apply those assumptions to a tenant just by selecting the option on the Commercial Income worksheet:

lra5

How to get it

If you already own a license of REIA Professional version 18, then you just need to download the latest build from your customer account at realdata.com

If you have a previous version, consider upgrading.  Upgrade costs can be found here.

Learn More

We have a knowledgebase article which walks you through the setup and configuration of the LRA feature.

New Short-Term Analysis Mode in REIA Pro

Today we are releasing build 1.07 for Windows and build 1.13 for Macintosh of our REIA Professional product to add a third “short term” analysis mode.  This is a free update for all those who have a license for REIA Pro v17.

Select the mode on the General Settings worksheet:

By making this selection, the software reveals a set of worksheets that are specific to a 24 month analysis.  In a typical short-term scenario, you plan to purchase a property, do some renovations, and then resell within two years.

With the addition of this feature, we can now say that REIA Pro has all the features that REIA Express has, plus many more.  See a feature comparison of the two REIA Products for more information.

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.

NPV, PI, IRR, FMRR, MIRR, CpA — Stirring the Alphabet Soup of Real Estate Investing, Part 2

IRR – Internal Rate of Return

Internal Rate of Return (IRR) seems to befuddle many investors, but if you understand Discounted Cash Flow and Net Present Value, then you already understand IRR. That’s because it is really the same process, but one where you are solving for a different unknown.

In DCF, you believe you know what the future cash flows will be, and you believe you know the rate at which those cash flows should be discounted. Your mission is to figure the Present Value of the cash flows.

With IRR, you still believe you know what the future cash flows will be, but now you know the Present Value and want to find the discount rate. How is it that you know the Present Value? This is a deal happening in the real world. The PV is the amount of cash you are paying for those future cash flows.

When you solve for the IRR, you are looking for the discount rate that accurately describes the relationship between those future cash flows and the money you put on the table on Day One.

When you’ve found the discount rate that makes the PVs of the future cash flow equal to your initial investment, you’ve found the IRR. You can express this another way: When you’ve found the discount rate that makes the NPV equal zero, you’ve found the IRR.

Admittedly, the math to find the IRR is ugly, but if you’re reading this then you probably have a computer (or a highly sensitive gold filling that also picks up the BBC on the Internet); there are plenty of tools, including Microsoft Excel and our own RealData software that will do the job for you.

IRR is the measurement of choice for many investors because it take into account both the timing and the magnitude of your cash flows. Consider this example:

You still have that $300,000 to invest, and you can invest it in the property you saw in the first example, yielding these cash flows and IRR:

Year 0 Initial Investment:
(300,000)
Year 1 Cash Flow:
10,000
Year 2 Cash Flow:
20,000
Year 3 Cash Flow:
25,000
Year 4 Cash Flow:
30,000
Year 5 Cash Flow:
385,000
(includes the proceeds of sale)
IRR = 10.32%

Or you can acquire this property:

Year 0 Initial Investment:
(300,000)
Year 1 Cash Flow:
80,000
Year 2 Cash Flow:
50,000
Year 3 Cash Flow:
30,000
Year 4 Cash Flow:
10,000
Year 5 Cash Flow:
300,000
(includes the proceeds of sale)
IRR = 12.97%

If you add up the cash inflows and outflows for both properties, you will find that each has $300,000 going out in Year 0, and a total of $470,000 coming in over the next five years. However, the second property shows a significantly higher IRR. Both properties have the same total number of dollars going out and coming in over five years, but the second property shows a greater return on investment. Why?

Because IRR is indeed sensitive to both the timing and amount of cash flow. The first property has a big payday, but you have to wait five years to get the money. In the meantime, annual cash flows are relatively modest.

In the sale year the second property returns combined cash from operation and resale that is only as much as you originally invested to acquire the property. However, the intervening cash flows are much larger, especially the earlier ones. The early cash flows are especially valuable because you don’t have to wait long to receive them and therefore you don’t have to discount their values so greatly.

But Wait…

This sounds terrific; we’ve found the perfect way to measure our investment’s return. But wait – on closer inspection, IRR has a few warts. Sometimes its results are imperfect, sometimes even misleading. In the third installment of this series, we will look at the problems with IRR and at some potential solutions. We’ll examine FMRR and Modified IRR, and how they provide us with a means of dealing with the shortcomings.

—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.

NPV, PI, IRR, FMRR, MIRR, CpA – Stirring the Alphabet Soup of Real Estate Investing, Part 1

NPV, PI, IRR, FMRR, MIRR, CpA–It may seem like a witch’s brew of random letters, but truly, it’s just real estate investing. You can handle it. Any or all of these measures can be useful to you, if you understand what they mean and when to use them.

NPV – Net Present Value

NPV, or Net Present Value, is connected to what all good real estate investors and appraisers do, namely discounted cash flow analysis (aka DCF, if you’d like some more initials).

Discounted Cash Flow is a pretty straightforward undertaking. You project the cash flows that you think your investment property will achieve over the next 5, 10, even 20 years. Then you pause to remind yourself that money received in the future is less valuable than money received in the present. So, you discount each of those future cash flows by a rate equal to the “opportunity cost” of your capital investment. The opportunity cost is the rate you might have earned on your money if you didn’t spend it to buy this particular property.

Consider this example, where you invest $300,000 in cash to earn the
following cash flows:

Year 1 Cash Flow:
10,000
Year 2 Cash Flow:
20,000
Year 3 Cash Flow:
25,000
Year 4 Cash Flow:
30,000
Year 5 Cash Flow:
385,000
(includes the proceeds of sale)

If you discount each of these cash flows at 10%, then add up their discounted values, you’ll get 303,948:

Year 1, Discounted:
9,091
Year 1, Discounted:
16,529
Year 1, Discounted:
18,783
Year 1, Discounted:
20,490
Year 1, Discounted:
239,055
Total PV of Cash Flows:
303,948

Now you have the Present Value of all the future cash flows. However, you also had a cash flow when you initially purchased the property (call that Day 1 or Year 0) – a cash outflow of $300,000, your initial investment. To get the Net Present Value, you find the difference between the discounted value of the future cash flows (303,948) and what you paid to get those cash flows (300,000).

NPV = PV of future Cash Flows less Initial Investment
NPV = 303,948 – 300,000 = 3,948

What does that mean to you as an investor? If the NPV is positive, it suggests that the investment may be a good one. That’s because a positive NPV means the property’s rate of return is greater than the rate you identified as your opportunity cost. The more positive it is in relation to the initial investment, the more inclined you’ll be to look favorably on this investment. Your result here is not stellar, but it is at least positive.

If the NPV is negative, the property returns at a rate that is less than your opportunity cost, so you should probably reject this investment and put your money elsewhere.

That’s all fine, to the extent that you’re confident about that discount rate, your opportunity rate. You estimated 10% in the example above. What if you adjust that estimate by one-half of one percent either way?

NPV @ 9.5%
= 10,284
NPV @ 10.0%
= 3,948
NPV @ 10.5%
= (2,244)

How about one full percent?

NPV @ 9.0%
= 16,789
NPV @ 10.0%
= 3,948
NPV @ 11.0%
= (8,238)

Clearly, the NPV here is very sensitive to changes in the discount rate. If you revise your thinking just slightly about the appropriate discount rate, then the conclusion you draw may likewise need to be revised. As little as a half-point difference could change your attitude from luke-warm to hot or cold. The prudent investor will test a range of reasonable discount rates to get a sense of the range of possible results.

While we’re beating up on NPV, let’s also note that it doesn’t do you much good if your goal is to compare alternative investments. To have some kind of meaningful comparison, you need at least to keep the holding period for both properties the same. But what if one property requires that $300,000 cash investment, but the alternative investment requires $400,000?

PI – Profitability Index

Fortunately, NPV has a cousin that can help you with that problem: Profitability Index. While the NPV is the difference between the Present Value of future cash flows and the amount you invested to acquire them, Profitability Index is the ratio. It doesn’t tell you the number of dollars; it tells you how big the return is in proportion to the size of the  investment.

So where the NPV in the example above was equal to 303,948 minus 300,000, the Profitability Index looks like this:

PI = 303,948 / 300,000 = 1.013

If, quite improbably, you expected exactly the same cash flows from the property that required a 400,000 investment, you would expect your Profitability Index to be much worse, and it is.

PI = 303,948 /400,000: = 0.760

A Profitability Index of exactly 1.00 means the same as an NPV of zero. You’re looking at two identical amounts, in one case divided by each other so they give a result of 1.00 and in the other case subtracted one from the other, equaling zero.

An Index greater than 1.00 is a good thing, the investment is expected to be profitable; an Index less than 1.00 is a loser. When you compare two investments, you expect the one with the greater Index to show the greater profit.

There is a good deal more stirring about in our alphabet soup, so join us for the next installment when we look at IRR – Internal Rate of Return.

—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.