The Annual Property Operating Data (APOD): Why Real Estate Investors Use It and How to Construct!
An Annual Property Operating Analysis (or APOD) is one of the most popular reports in real estate investing commonly used by real estate investors doing a rental property analysis.
At the same time, however, it might be one of the most perplexing terms one hears for the first time. Mostly because when people hear the word "APOD" they conjure up a picture of a camera (i.e., apod sounds like tripod).
But not so.
The word APOD is actually just an acronym for "Annual Property Operating Data" and has nothing to do with cameras and everything to do with real estate analysis.
In this article we'll discuss the pros and cons of an APOD for a real estate analysis as well as how to construct one.
An APOD ignores tax shelter consideration and therefore only shows the cash flow before tax (CFBT), not cash flow after tax (CFAT) or other data following the investor's tax liability.
Its use is as the real estate equivalent of an annual income and expense statement yet as more of a "snapshot" of a property's annual income and expenses. Its popularity lies in the fact that it can be used to give the real estate analyst a quick evaluation of income property performance for the first year of ownership.
Therefore, because it does reveal income, operating expenses, net operating income, debt service, and cash flow concisely, it does serve investors well as a good "first-glimpse" of the investment opportunity.
Of course, a well-constructed APOD with sound operating data is best for comprehension. Obviously, the clearer and more correct the annual property operating data, the easier and more prudent the investor's determination of rental property performance.
How to Construct
Here's a good procedure to follow when you construct an APOD, but remember to include annual (not monthly) dollar amounts.
1) Show the income derived from rents. This is known as Gross Scheduled Income (or GSI) and should represent the sum of all annual rents as if the units were 100% occupied. So include an annual rent even for vacant units. In this case, you can use any rent you like (perhaps a market rent) just as long as it is realistic.
2) Show an amount for vacancy and credit loss. This represents the percentage of units currently vacant. Deduct the amount from the gross scheduled income to compute Effective Gross Income (or EGI).
3) Show the income generated from other sources (if any). This includes income from other sources such as laundry income. Add this amount to EGI to compute Gross Operating Income (or GOI).
4) Show the operating expenses. This includes property taxes, property insurance, utilities, trash, repairs and maintenance, property management, advertising, landscaping, and so on. It DOES NOT include debt service. Compute and label the total Annual Operating Expenses.
4) Compute Net Operating Expenses (NOI). Deduct operating expenses from GOI to compute Net Operating Income (NOI).
5) Deduct the annual debt service (mortgage payment) from NOI. This will compute Cash Flow Before Taxes (CFBT).
For good measure, you might want to add a computation for cap rate, gross rent multiplier, and cash on cash return.
This is not necessary, but it does create an APOD that will make you proud to present to customers and lenders. If you prefer not to re-invent the wheel and would simply like to start creating top-notch APOD's immediately, then check out the following software solutions.
About the Author
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! Learn more at www.proapod.com
ProAPOD also provides iCalculator - an online real estate calculator that enables you to learn dozens of real estate definitions and formulas as you calculate. You save 64%. Learn more at real estate calculator
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