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A Modified APOD With Full Tax Shelter Consideration

Updated on March 5, 2015

The APOD (Annual Property Operating Data) is probably the most popular and widely recognized real estate analysis report used for real estate investing because it’s easy to read and understand; and for the most part provides a decent "snapshot" of a rental property’s income and operating expenses during the first twelve months of operation.

In fact, during my tenure as a Realtor many of my investor customers were satisfied to initially rely on an APOD for a reasonable first-glance at a property’s annual operating data to make instant decisions whether or not to pursue an investment opportunity further.

Nonetheless, as useful as an annual property operating data report is, it does not account for income taxes. That is, it shows the cash flow a real estate investor might collect from the investment annually before taxes, but doesn’t reveal what the investor might actually get to pocket once he or she pays the IRS the following April.

Fair enough. But then I began to wonder whether it was possible to create a suitable report with all the benefits of an APOD, but with full consideration for tax shelter. In other words, an easy-to-read and understand one-page report that would provide real estate investors the same initial first-glance of a property’s annual operating data as the popular standard, but also with the resulting after-taxes data associated with tax shelter.

Although any real estate analysis will generally include other reports like a proforma income statement that provide the tax data, and certainly no investment decision should be expected to made on one report alone, still it just seemed like a good idea to include it up front in a report typically used by investors who just want a “snapshot” of a property’s potential financial performance during the first year of ownership.

Let’s start out with a screenshot of what a standard APOD typically looks like and then show you what a modified report that includes the tax data could look like.

Standard APOD

Source

Modified

Source

Explanation

Okay, let’s compare the two reports to see how the modified version differs from the standard version.

In the standard version, notice in the right column that gross operating income less operating expenses less debt service equals the annual cash flow. This is revenue before taxes; the funds the investor can expect to collect that is still subject to income tax.

In the modified version this is also included, but in the left column. Now look at the right column of this version where the tax data appears. Allow me to explain.

The IRS allows owners of rental income property to write off annual deductions for depreciation allowance, operating expenses, mortgage interest and amortized loan points. So you will see a section for Depreciation, Tax Benefit, and Cash Flow After Tax along with the resulting data for each.

If you decide to create one for yourself, here are my suggestions.

  1. Use MS Excel or a comparable spreadsheet software program
  2. Create a form to collect the financial data on one worksheet
  3. Create the report on a separate worksheet
  4. Add the necessary formulas to each appropriate cell in the report

If you rather skip the work and want one already developed and ready-to-go , than consider my Investor 8 real estate investing software solution.

About

James Kobzeff is a real estate professional and the owner/developer of ProAPOD - leading real estate investment software solutions since 2000. Create cash flow, rates of return, and profitability analysis on rental property at your fingertips in minutes!

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