How to Select Real Estate Investment Software To Meet Your Objective and Budget
Real estate investment software is what real estate investors, agents and analysts use when conducting a rental property analysis in order to determine the property’s cash flows, rates of return and profitability.
This is straightforward.
Real estate investment software enables the analyst to crunch the hundreds of numbers required to evaluate an income property’s immediate and long-range financial performance quickly and easily, as well as to create the range of professional-quality reports the analyst will use to make personal investment decisions or as presentations to customers, lenders and colleagues.
But real estate investment software solutions are not created equal.
Cost certainly varies; but more importantly, the quality, options, and features provided by the software program also vary.
So what should you look for in real estate analysis software to achieve your business objective at the greatest value possible?
We will assume that any investment real estate software you might consider makes the correct calculations for all of the cash flows and returns they provide. True, there will be diversity amongst the programs as to which returns are calculated, but our purpose is to look beyond the technical aspects of the software.
So for our discussion calculation correctness is a given and we will focus only on the various aspects of real estate investment software you should consider to meet your budget and real estate investing objective.
Analysis and Marketing?
Real estate investment software can typically provide you with elements to analyze investment property cash flows and rates of return for investment decisions as well as elements to market the property when you are attempting to sell it.
Therefore start by deciding what you want the real estate investment software to provide you. Are you concerned about rental property cash flow analysis presentations only or would you also like the software to create marketing presentations?
Tax Shelter Consideration?
Investment software solutions may just provide an essential analysis with the computations for cash flows and rates of return "before taxes". Or, in some cases, may also provide deep-level analysis with "after taxes" computations and time value of money computations.
Naturally the cost will be higher for the deeper-analysis software so select it based upon your real estate investing objective.
Real estate agents and investors who might only work with rental property occasionally, for instance, probably might not require the more robust after-tax calculations such as depreciation and tax liability. So they would get the most value from a real estate investment software solution that includes the essential elements to create "before tax" cash flow and profitability presentations.
On the other hand, real estate agents and investors planning to be more engaged with real estate investing and seeking to build or grow a real estate investing business would want the investment software solution to create "deep-level" analysis presentations.
Bear in mind that real estate investment software that creates "after tax" and time value presentations typically also create "before tax" presentations. But it will cost you more. So buy it only if you need it.
Which Optional Features?
Okay, now let’s look at some other options you might also want real estate investment software to provide to maximize and add flexibility to your real estate analysis. These are not necessarily available in all software solutions, so if you want them you want to be sure that the software you purchase provides them.
Revenue projection “steps". The ability to “step” the vacancy allowance, rental income, and operating expenses when creating a Proforma Income Statement can be a real advantage because it enables you to project future revenues for a rental property based upon criteria you feel realistic for the future. For example, if the current vacancy rate at acquisition is unduly high, you would want to be able to adjust that rate at some future year and not have merely applied to the entire holding period.
Rent scenario evaluation. The ability to create various rent scenarios (i.e., best and worse case) in order to adequately evaluate what effect those rents might have on the cash flow, rates of return and profitability is extremely useful.
Option to determine future selling price. The ability to choose between various price methods the way you want the proforma income statement to calculate the property’s future selling price gives you incredible flexibility over revenue projections. For example, in addition to just specifying a future selling price, you have more of an advantage when given the option to also base it upon cap rate using either the current or next years net operating income, gross rent multiplier, or inflation rate.
Real time calculations. This has nothing to do with the integrity of the numbers, but forms that also let you see the results for the data you’re entering is awesome because you are always in touch with the numbers.
Passive losses option. Not typically as important to some analysts as it is to others. Nonetheless, if you want your revenue projects to reflect something other than what is specified by IRS requirements, you want to look for real estate investment software that enables you to select between “passive losses carried forward” and “losses taken currently”.
Canadian amortization. Not typically important to most of us in the States, but Canadian agents and investors would certainly want software to compute the correct loan amortization used in Canada.
You get the idea.
Real estate investment software is available at various prices depending on what it provides. So consider your real estate investing objective and budget and purchase only what you need. You don’t have to pay more for elements and features you may not use.
Hope this insight helps. Here's to your success.
About the Author
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