Crunching rental property cash flows, rates of return and profitability numbers adequately enough for investors to make prudent real estate investment decisions can be quite labor-intensive. In fact, prior to the advent of computer technology it was very time consuming because it required the analyst to manually compute and format the results manually.Now with the advance of third-party software solutions, however, it has become common practice for investors and analysts to rely on software to do the number crunching for them. The benefit derived, of course, goes without saying: The time and effort they save by eliminating as many manual tasks as possible frees up time for them to pursue their real estate investing objective. Namely, to locate rental properties they might be able to acquire for profit.Nonetheless, this benefit is not understood by everyone who works with rental income property and conducts a real estate analysis. Strangely, it’s not uncommon to find, despite this age of technology, investors and agents who still compute and format the results manually.So it seemed needful to address the issue and to make a case about the benefits of using software to those of you that remain uncommitted.Rest assured, however, that my purpose is not intended to highlight any one particular software product, but rather to get you thinking about the “concept” overall. In other words, hopefully once you consider how we conducted a real estate analysis in the “old days” you will come to more fully appreciate why software evolved, the issues it solves, and how you can benefit as a result.OriginThe challenge to create a cash flow and rate of return analysis has been around as long as real estate investing. It’s difficult to imagine, in fact, that any investor throughout any time in history didn’t use some method to determine whether or not a property would result in a profit.Prior to the advent of computers, of course, that process had to always be performed manually. Even as recently as the early 1990′s, for example, I was conducting a real estate analysis with a calculator in one hand and pencil and paper in the other.Some of you remember the hardships and difficulties those of us working with income property had to resolve manually in those “early days”.The DataThe data associated with investment real estate is the heart and soul of any real estate analysis. This goes without saying. The real estate investor must understand the financial performance of a property in order to discern its particular value.Before computer programs, however, this presented several problems.Foremost, especially for novices, knowing what data was required for a meaningful bottom-line was not always understood. What constitutes a rental property’s operating expenses, for instance? Or what data is needed to arrive at a property’s net operating income, cash flow, or rate of return? What must be included to make revenue projections? And so it was.Then, of course, there was the issue of the math. Because by the same token the correct data is required, computing the numbers correctly is paramount. As a result, there was always the laborious task of checking and re-checking the numbers to ensure accuracy.Up until computers and third-party software programs came along that process always took plenty of time and involved a lot of second-guessing.The FormulasThere are a host of returns real estate investors rely upon to measure the worth of an income-producing property in order for the investor to determine how it compares to their individual investment objectives, and/or how its value stacks up to the values of similar types of property in the local market area.As a result, investors look at returns such as cap rate, gross rent multiplier, cash-on-cash, internal rate of return, and numerous others. Some of these returns require just simple math that can almost be computed in one’s head. But there are also many returns far more complex. For instance, rates of return associated with the elements of tax shelter and time value of money are certainly going to require nothing less than a financial calculator.The point is that each return constitutes a formula, and up until the availability of software solutions, those formulas needed to be learned.The PresentationsAnother (more subtle) issue facing anyone conducting a rental property analysis concerns the presentation. For in addition to ensuring complete and accurate data, at the same time it must be displayed well. That is, the reports must be constructed so the facts and figures are easy-to-read and easy-to-understand.Over the years I’m sure there have been real estate deals transacted with numbers presented on a napkin. But that’s far from the norm, and would certainly not fair well for presentations made to investors, colleagues, partners or lenders.Thanks to computers and software, all the efforts we once made to create professional-quality reports are a thing of the past. In today’s world, reports are created automatically and look better than ever.ConclusionA computer or third-party software program cannot guarantee your real estate investing success. Whether you own the most advanced PC, most recent MS Excel version, or maybe even more than one real estate analysis software solution, you’re not off the hook. You still have to do your research and homework.Nonetheless, there is a benefit to this technology if you wish to employ it. Hopefully this article has shed some light on the advantages. Here’s to your success.
Lets face it… most people who own IRAs, 401Ks or other retirement investments, rely on the expertise of a broker or some kind of custodian to manage their funds. Most of these managers don’t offer IRA investing in real estate as and investment vehicle. Most rely on stocks, bonds, mutual funds, etc. to make up their portfolio. Then at the end of the year, they may be happy to see that they have made a meager gain, and relieved if they haven’t lost anything.IRA investing in real estate has made some nice gains for the savvy investor and could make your portfolio grow faster than in any other kind of investment.When I had to make a choice as to where I should roll my 401K money, I had to rely on the recommendation of friends and family. I didn’t know anything about IRA real estate investing, so I chose a guy that a friend of mine told me about. They had almost 1 million dollars at one point, until the stock market plummeted and they saw their portfolio shrink.Had they chosen IRA real estate investing, they could have turned their investments into millions.Even so, they were happy with his performance overall. My wife and I met with the guy, liked his personality and decided to work with him.Unfortunately, the gains we received were minimal. IRA investing in real estate wasn’t even offered by his firm, so most of my portfolio was a mix if stocks, bonds and mutual funds.I was already working in real estate and started seeing articles on the internet about IRA real estate investing. People were using their IRAs and 401ks to buy income property, hold it for awhile and then sell it for a profit.This property, if purchased properly, was giving a 12% or better return just from the rental income. Then when they sold it down the road, any profit was added on and the return on investment went through the roof. IRA investing in real estate was making millionaires.This was when I saw the light and ventured into IRA real estate investing.I did some research and found that IRA real estate investing was nothing new. It’s just that most people have never been introduced to the idea of using real estate as a vehicle to make their portfolio grow.There is approximately 7 trillion dollars invested in retirement funds, but only 3% of those funds invested in real estate.IRA real estate investing may be the holy grail of sound investments. Historically, real estate has always risen in value. Of course, this rise is quicker in some areas, and slower in others.But overall, most real estate gains value over time. And the savvy investor can take his or her IRA and make a sound investment, with a predetermined gain. They now can have control over how fast their money grows.But how do we go about using our IRA for real estate investing?First of all, IRA investing in real estate is totally accepted by the IRS. You can invest in single family homes, apartment buildings, raw land, and even purchase shares of a limited partnership, land trust, c-corp or LLC. Virtually any kind of retirement fund can be used for the purchase of real estate.Where do you begin? First of all you have to find a custodian that deals with self directed IRAs.
Once you roll your funds into this self directed IRA, you then can tell the custodian of this fund where you want to invest. They will be able to help you in choosing investments that fall within IRA guidelines.They will be very familiar with helping their clients with IRA real estate investing and have all the paperwork necessary for a smooth fund transfer and purchase of the property.You don’t want to be a landlord you say? Many properties are available with property managers in place. IRA investing investing in real estate can be passive and turnkey, if you choose the right people to work with. I didn’t want to be a landlord either, but found a program that is allowing me to see some fantastic gains without the headache of being a landlord.In conclusion….you don’t have to watch your portfolio shrink every month. IRA real estate investing can be your answer to making a change. You now have a way to take charge of your future and watch your investments grow, with a safe investments and calculable gains.