for buying real estate investment software
There are all kinds of real estate investment analysis software products. They generally fall into three categories: the good, the bad and the ugly. The trick is to pick the good ones. Then settle on just one. Unfortunately, this process of sorting through the alternatives can be confusing. How do you go about choosing one?
Obviously, the best real estate model is the one that is the most powerful, flexible and easiest to use for the least money. All of us developers strive to accomplish these goals. How well we do, to a great extent, determine how successful we will be. But one person's treasure is another's junk. The only way to separate the wheat from the chaff is to methodically go through the steps that define a good model.
The following is this developer's analytical look at the decisions that go into purchasing real estate investment analysis software. As I cover each decision criteria, I'll also point out how our Real Estate Investment Software Model software meets these criteria.
Obviously I have something to sell, so don't just take my word. Be skeptical. Be tough. Insist that everything I say makes sense. And yes, check out the competition. By the time you're done, I think you'll agree that I've been thorough and fair. I also think that you will agree that there is no other real estate investment software with anything approaching our power, features and ease of use — for any price.
BUY VERSUS BUILD: First of all, if you're analyzing investments with pensil and paper, you need to get into the 21st century. You're putting yourself at a huge disadvantage and it's costing you money.
The next level of sophistication are the self-developed programs, usually developed on a spreadsheet. Some of these are fairly good and perfectly adequate for analyzing investment properties. But most are pretty simplistic. An individual cannot possibly devote the thousands of hours of time or millions of dollars of development costs that go into a professionally developed software product. In addition, individuals rarely have the degree of expertise across multiple disciplines like finance, programming and real estate that professional companies have. So why re-invent the wheel even if you could? It's a competitive field and you can get a professionally developed model with an unbelievable amount of capability for just a few hundred dollars. So, by all means, buy a professionally developed package. At the very least investigate the alternatives.
That said, I will tell you that just because a software product has millions devoted to its development does not guarantee that it is a good product. I have worked with a few million dollar models that are almost useless. So how do you separate the wheat from the chaff? You have to do your homework. Study guidelines like this one, set priorities, compare features, view demo presentations, look at reports, and if possible get a recommendation from someone who has used it.The IPS Real Estate Investment Analysis Software contains thousands of lines of code which give it its power and ease of use.
The design of the IPS Real Estate Investment Software Model is heavily influenced by principles and techniques learned while studying under the legendary Dr. James Grasskamp (aka the Chief), professor of Real Estate and Urban Economics at the University of Wisconsin which was using sophisticated real estate analysis models over thirty years ago.
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PRICE: Once you've decided to purchase real estate investment analysis software, you'll have to decide on a price range. Some Real Estate investment software programs cost thousands of dollars. Some are priced around a thousand. Still others are priced at about $500. But the majority are priced below $500.
There's a saying— you get what you pay for. In general, I agree with this. But not always. As I mentioned above, some very expensive models are junk.
The first thing you need to do is think VALUE not price. Secondly, remember what you're using it for. Your investing, at a minimum, hundreds of thousands of dollars. What's it worth to prevent you from buying a white elephant? If a package helps you buy a more profitable property, how much is that worth? The point is, don't be penny wise - pound foolish and buy on price alone. That is not to say that price is unimportant. Obviously, all things being equal, you should go with the least expensive package. But all things are rarely equal. These packages are not commodities. There's a huge difference between them. It's all about differentiation: Power, features, flexibility, ease of use, etc. And yes, price. A good Web-Site should provide you with enough information to make a decision.
That said, here are a few things that I've found while looking at the alternatives:
1) in my view, the packages that are priced over $500 do not have any added benefit and indeed have some serious limitations like ease of use and unnecessary detail;
2) likewise, the packages at the other end of the price spectrum are also suspect. Many of these, at least the few that I looked at, are extremely simplistic and look to me like models developed for self-use where the owner/developer has decided to make some extra money by selling them on the internet. But do your own comparisons and decide for yourself.
3) beware of "Lite" models which have more expensive big cousins. The lite versions are generally deficient and designed to get you to up-grade anyway.
4) beware of the never-ending and costly add-ons. These can often double the price. Make sure your comparing apples to apples. For example, if you want added capability such as a developer and task scheduler version or a lease vs. buy analysis, be sure to take into account those that require more money for these and those that offer them at no additional cost.
So again, don't buy on price alone. Set a wide price range, then get the software you really want which meets your needs. Considering the size of the investments at hand, saving a few hundred dollars for an inferior model when the stakes are so high just doesn't make sense. Remember, a good model will pay for itself thousands of times over — and that's no exaggeration.Where does the IPS Real Estate Investment Analysis Software Model fit into this price range? Our price is normally $389 but we are currently doing a promotional price for $189.
This is the fully featured model and includes many additional programs free of charge (see Other Included Programs below).
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OTHER INCLUDED PROGRAMS: Some products include related or tangential programs free of charge; others offer them for an additional charge. Some of these may be important to you, if not now, perhaps in the future. So consider these additional programs.The Following are the additional programs included free of charge in the IPS Real Estate Investment Software:
Lease Roll-Up (Rent Roll): Some investors like to have an optional rent-roll to develop gross rents. However, some rent-rolls are overly simplistic and simply add up individual lease payments and don't allow future yearly changes by lease. Know what you want and make sure it's what you get. The IPS Real Estate Investment Analysis Software's Lease Roll-Up allows yearly changes, allows mixed use (e.g. shopping centers where part of the lease is derived from Store Revenues), grouping of like leases, lease abatements, other income, square feet, number of apartments/office units, number of bedrooms, etc.
Sensitivity Analysis: This analytical support program provides a quick way (single click) to look at the sensitivity of key output variables like Modified Rate of Return, After Tax Cash Flow and Future Cash Value (Net Worth) to changes in input variables like 1) interest rate; 2) vacancy rate, 3) appreciation rate; 4) rental growth rate; 5) percent equity down-payment; and 6) percent change in purchase price. Results are presented in visually appealing charts and graphs that contrast the three scenarios: i.e. optimistic case, most likely case, and pessimistic case.
Advanced Sensitivity Analysis: This analytical support program is far more powerful that the Sensitivity Analysis above. This sheet has 10 input variables which can be incremented or decremented by small amounts by single mouse clicks. When the spinner bar is clicked, the model re-calculates and instantly displays critical output values on 7 graphs (as well as tables for detailed analysis). The 10 input variables are 1) Percent of Purchase Price; 2) Percent Equity Down-payment; 3) Appreciation Rate, 4) Vacancy Rate; 5) Rental Income Growth; 6) Interest Rate; 7) Loan Discount Points; 8) Percent of Loan Prepayment; 9) Opportunity Cost of Equity Capital; and 10) Market Capitalization Rate.
The user can isolate one variable and see the impacts of that one change on the output graphs; or the user can opt to change all ten variables and see how a combination of changes impacts the output graphs. This capability is ideal for determining the appropriate leverage, fine tuning the offering price, and determining up-side potential and down-side risks. With this capability, you can literally run through 20 or 30 scenarios in less than 1 minute.
Developer Assistant: This program is for those who want to build an apartment or office building or shopping Center. It develops a Building Component Construction Cost Estimate (calculated by "Comparative Units Method"). It then uses one of five supplied or a user defined "S-Curve" to spread costs over the construction period (up to 25 months). It will calculate financial costs based on this cost curve. It also provides a 25 consecutive task table from which to apply "CPR" (Critical Path Method) and "PERT" which uses beta and normal distributions for ascertaining confidence levels for completing the project by a specific date. This capability is extremely easy to use and you don't have to know any statistics to use it.
In addition, a Task Manager and Scheduler (including GANTT Charts) is provided for scheduling and managing tasks. This could be used to manage complex tasks or simple renovation tasks. There's tremendous interest in flipping and/or renovating properties as evidenced by a plethora of wildly successful shows like "Flip This House™", "Flip That House™", "Property Ladder™", "Trading Spaces™", "Extreme Makeover™", "Designed to Sell™", "This Old House™", ...ad infinitum. But what you don't see is the planning and organizing that goes into it. Software that helps you manage the tasks could easily save time, thousands of dollars and a lot of stress.
Lease vs. Buy to Occupy Analysis: This program is for those who might be in an office or manufacturing building and are trying to decide on whether to lease or to purchase the building. Easy to use and provides comparative graphs for easy analysis.
External Factor Analysis: This is a simple program that provides a non-financial analysis of "External Factors" that may influence the purchase decision. What it does is give a quantitative number to typically qualitative characteristics like: location, proximity to metropolitan area, transportation, schools, crime, street appeal, demographics, demand/saturation, landscaping, type of construction, age, etc., etc. In choosing close financial alternatives, this analysis can be the deciding factor.
Comparable Property Analysis: This is a simple worksheet that provides a comparison of comparable properties to the property of interest.
Marketing Flyer with Mortgage Analysis: A good looking flyer is provided when you market the property (see sample reports).
Separate Loan Calculator: This program is just a convenience for analyzing loans separate from the model. It can determine loan amounts given payments or payments given loan amounts. It can generate detailed reports and incorporates points and optional prepayment schedules.
TECHNICAL SUPPORT: Some companies charge for technical support. Some provide it free. Know what you're getting when you purchase the software.We provide free technical support. In addition, we are available for special customization jobs and consulting services in general.
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DEVELOPMENT PLATFORM: There are three alternative platforms upon which models are built. The first is the stand-alone ".exe" program. The second is the spreadsheet template, and the third is the spreadsheet model that is not a template but completely controlled by visual basic programs behind point and click menu options. Each has it's advantages and disadvantages. Depending on how you use programs, it behooves you to address this issue before you buy a model. Obviously, people have personal preferences and my opinions are just that. In the final analysis, you must be comfortable with whichever platform you choose. But if you're unsure, the following will give you food for thought.
Stand-alone "exe" models, if developed well, can be very good. They give the developer the power and control that a powerful programming language provides. For certain applications, it's the only way to go. But they are necessarily more rigid, inflexible and definitely not extensible by the user. For financial applications, I personally find "exe" programs confining and more difficult to use. But that's a personal judgment.
The spreadsheet also has pluses and minuses. Obviously, the spreadsheet models require the purchaser to have the spreadsheet upon which the model was developed. Since most people already have a spreadsheet, this is generally not a problem. However, in my opinion, the advantages of using a spreadsheet are so great that even if you had to purchase it separately, you should without a second thought.
You'll see some competing vendors ridicule spreadsheet models for real estate analysis. They'll say that spreadsheets are not sophisticated enough or capable enough to achieve the necessary rigor and ease of use. Some even deprecate their presentation capabilities. Don't believe them! There's a reason that virtually every business makes heavy use of spreadsheets and Microsoft Excel™ in particular.
Spreadsheets were designed for financial applications. By using MS Excel™ as a development platform, the developer can leverage the billions of dollars that Microsoft has already spent and intends to spend. You not only get the application, but all the power, ease of use, familiarity and flexibility that Excel has to offer. Furthermore, using Excel allows the user to easily connect or move data between other "Microsoft Office" applications like PowerPoint or Word. This can be extremely useful. This is precisely why almost all financial applications import from and export to MS Excel™ spreadsheets.
But why import from and export to Excel if you don't have to. By including Visual Basic for Applications (and the office studio development platform) Microsoft provides enough power to satisfy even the most demanding developer. This provides the developer with the best of both worlds. This is a very powerful combination. So powerful, that Microsoft even has conferences dedicated to using MS Office™ as a development platform.
Believe me, I've developed financial applications for businesses all over the country using MS Excel™ and its VBA programming language. It's precisely the power, ease of use, flexibility, and extensibility that makes this combination attractive. Of course, you wouldn't want to develop a word processor with it. But financial applications are a no-brainer.
This is not to say that a less than capable developer might botch the job and develop a real mess of a program. But that's possible no matter what platform a person uses.
Perhaps the single most important benefit of using Excel as a development platform is the extensibility that it gives the user. By extensibility, I mean that the user can extend or customize the application — for example, adding cell notes, special calculations, additional graphs and even new reports. Unfortunately, however, many of the real estate packages on the market purposely "lock" their worksheets thus depriving the user of the benefits of customizing the program. Make sure the software that you get is "Extensible".
I do have one caveat however. Some of the packages on the market use a spreadsheet as a platform but are essentially just templates. In my opinion, templates are too simplistic and limiting and just don't have the horsepower to do a good job of real estate analysis. They're better than nothing. But you really need the power of a programming language to achieve the sophistication that a truly powerful model requires. That's why I use Microsoft Excel. It includes VBA programming capability and is the primary reason that we can achieve the power, flexibility, ease of ease and extensibility that we do.The IPS Real Estate Investment Software Model is developed on Microsoft Excel with heavy use of VBA. The VBA code does the heavy lifting and the sheets are essentially used as input/output vehicles. As I said, I've developed models for corporations all over the country and they universally like, indeed, demand this approach, especially the extensibility that is only possible with the spreadsheet/VBA platform.
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EASE OF LEARNING AND USE: If a model is powerful but difficult to use, it will never be used. The power is wasted and so is your money. This is subjective and difficult to judge because you almost need to see the program in use to ascertain it ease of use. How do you find out? Demo's, sample reports, descriptions and downloaded presentations are the usual methods. If possible, get a first hand recommendation by someone who has already used the model.We believe that the IPS Real Estate Investment Software Model is the most powerful and flexible real estate investment software package on the market. But our number one priority in designing it was ease of use and ease of learning. While the underlying "code" is complex, it's all hidden from the user. You don't even have to know anything about how to use the Excel spreadsheet to use this model (although it would be useful if you want to customize or extend the model to your own needs).
The IPS' Real Estate Investment Software is menu driven. If you can point and click you're home free. Essentially, operating the IPS Real Estate Investment Software Model revolves around three menu options:
"INPUT DATA" "RUN MODEL" "VIEW/PRINT REPORTS"
It's just that easy. Everything else in the model is either a support program (e.g. developer assistant, task manager, loan calculator, etc.) or an option that facilitates these three options (e.g. an option that takes you to an explanation of data inputs, or an option that explains what each report is and what it is telling you).
However, ease of use entails more than just operating the model. Simply employing "point and click" menu options for operating and navigating the software is woefully insufficient. Interpreting what the data is telling you can be a daunting and confusing task. A good model will generate a lot of data which can and will overload your sensories. Rarely will a project's financial characteristics jump out at you simply by viewing reports. Here's where the really good models shine.
The IPS Real Estate Investment Software Model uses something akin to artificial intelligence to grade the project (A,B,C,D,F) over five categories: overall grade, return on investment grade, risk grade, cash flow grade and assumption consistency grade. To assist the investor further, the model again uses its intelligence to point out in English, critical issues, problem areas that need further review, and outlier data. We also provide an on/off switch for viewing reports, which when turned on, highlights data outliers much like a yellow magic marker. And finally, the IPS Real Estate Investment Software Model generates an Executive Summary which entails presentation quality charts and graphs to summarize the project. This executive summary covers return on investment, leverage and risk, cash flow generation, comparison of the project with alternative investments, analysis of the greater fool problem, assumption consistency, net worth analysis and much more.
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FLEXIBILTIY: Financial analysis is difficult enough, you don't need the software getting in your way. Unfortunately, most software packages are extremely rigid. Once you have a model that does give you flexibility, you won't know what you did without it.The IPS Real Estate Investment Software Model is designed to make your financial analysis fast and easy. This is also why we chose MS Excel™ with VBA as a development platform. The result is unrivaled flexibility. Let me elaborate.
We don't make you input a single growth rate for expenses. We allow you to use growth rates each and every year. Or, if desired, as a % of rents. Or, a combination. Same thing with rents, enter growth rates or direct input or use the optional lease roll-up, or a combination. We also have an option to perpetuate numbers across the fifteen years to save additional input time.
We allow multiple assets and loans that go into service in any year. A nice feature here is an on/off switch that excludes the asset or loan from being used. This means that you don't have to continually re-enter all the input variables that are associated with assets and loans. Very convenient for testing alternative scenarios.
Say you want to look at several properties. Just copy multiple data sets, input the data, set the re-direct option and run one right after the other. Copy summary reports and compare them side by side.
We've carried this emphasis on flexibility throughout the model.
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DOCUMENTATION AND HELP FACILITY: You can't over-emphasize the importance of documentation. Just because a model is easy to use, is no excuse for skimping on documentation. So do your homework. If the documentation is a paltry five to ten pages, forget it.The IPS Real Estate Investment Software Model includes what is essentially an on-line book. It covers not just how to use the model, but also discusses Real Estate investing in general and covers finance and accounting concepts that you should understand. I explain each and every report and what it tells you. I also define and explain all input and output variables. In addition, I even discuss in detail what the "no money down" types of programs that you see so much on late night TV have to offer. In addition, I provide many different sample data sets (e.g. highly leveraged projects, greater fool problem and more) and explain the input and output and how to analyze them. I even provide Excel tips and techniques that will increase your productivity.
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REPORTS: Most Real Estate Analysis Software provide only two reports: 1) what I would call a cross between an Income Statement and a Cash Flow Statement, and 2) a Sales Report, with perhaps a few ratios thrown in. Some would argue that you don't need any more than that. I disagree. Each report tells you something special about the project. You may not want to look at each and every report every time, but when you want that special information, it should be there for you. Furthermore, real estate analysis has traditionally employed non-standard reporting and indeed has evolved a jargon of it's own much to the chagrin of professional financial analysts. But investing in properties is a business and should be treated as such. So while traditional analysis and jargon should be preserved, real estate analysis should be brought into the 21st century using more robust reporting and analysis just like the purchase of any other type of business would require.The reports in the IPS Real Estate Investment Software Model are the most comprehensive available on the market. Furthermore, they provide not just traditional real estate terms and rules of thumb, but goes significantly beyond, satisfying even the most demanding financial analyst. See our Reports below: (Note: all reports are explained in much more detail in the model's documentation, including explaining what each line item is and the story it tells).
- Executive Summary: This is a presentation quality summary of the project, presented -- not in standard yearly report format -- but in graphs and charts that succinctly express the project's
financial viability. I start the report with a grading system (A, B, C, D, F) whereby I grade the project over five categories (Overall grade, Investor Return grade, Financial Risk grade,
Cash Generating Ability grade, and Assumption Consistency Grade. I follow this with written list of potential problem areas and outlier values and suggestions about what to do about them.
All this is done by the software's built-in intelligence. I then follow with charts and graphs over eight critical categories that cover:
- Adequacy of Return on Investment
- Future Net Worth vs. Alternative Investments
- Components of Net Worth (from appreciation, cash flow generation and re-investment assumption)
- Cash Generating Capability
- Financial Risk
- Market Value Assumption vs. Valuation (greater fool problem).
This is the most important report in any real estate investment analysis software. If a real estate investment software package doesn't have a quality Executive Summary, don't buy it.
- Income Statement: This is a true Income Statement and measures financial performance over time. It's an accounting measure and should not be confused with traditional real estate statements which often don't provide normal "business" statements. I treat investment property like a business and you should too.
- Balance Sheet: This report provides a picture of your financial condition at any point in time (all your assets and liabilities associated with the project).
Financial analysts consider it the second most important financial statement right behind the statement of cash flow. No one would think of starting or buying another type
of business without seeing its balance sheet. No venture capitalist or bank would finance it. It shouldn't wash with real estate analysis either. This is the only real estate package
that provides a balance sheet. You should demand it.
Balance Sheets are cost based (i.e. historical cost). However, for investment property, it is also very useful to have a balance sheet based on Market Value (including estimated liabilities for selling costs and taxes associated with selling). This gives you a truer picture of your actual financial condition at any point in time. We provide both types of balance sheet.
- Statement of Cash Flow: This report shows the flow of cash from operations of the project. Another related report is the cash flow associated with the sale of the project in each and every year.
- Statement of Sources and Uses of Funds: This report is similar to the cash flow report but with a different format that focuses more on showing where the project's operating
cash comes from and where the cash is used.
A second report provides exactly the same information but in percentages, i.e. percent of total sources of funds used.
- Net Worth Analysis: This report shows how each of the components of Net Worth contribute to it's growth, i.e. from cash flow, from property appreciation or from re-investment assumptions. There are two reports: the first is from an accounting point of view; the second is from an economic (cash) point of view.
- Valuation Analysis: This report values the property from many different perspectives, i.e. Internal Rate of Return, Modified Internal Rate of Return, Future Cash Value or Net Worth, Present Value, With Sale and Without sale (infinite cash flow streams), comparisons with alternative investments, and greater fool analysis.
- Ratio Analysis: This report shows three pages of critical ratios (allowing for graphical representation of each). In addition, there is an on/off switch which highlights (like using a yellow magic marker) unusual or outlier data.
- Tax Report: This report details how the tax calculations; both from operations and from the sale of the property.
- Asset Detail Report: This report shows details for each asset.
- Loan Detail Report: This report shows details for each loan.
- Project Assumptions (Input Data): This report is the Data Input, including a description of the property, a picture if desired and other useful information. The user can also blank out the input data, print it and take it to the property for easy on-site data collection.
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- Executive Summary: This is a presentation quality summary of the project, presented -- not in standard yearly report format -- but in graphs and charts that succinctly express the project's financial viability. I start the report with a grading system (A, B, C, D, F) whereby I grade the project over five categories (Overall grade, Investor Return grade, Financial Risk grade, Cash Generating Ability grade, and Assumption Consistency Grade. I follow this with written list of potential problem areas and outlier values and suggestions about what to do about them. All this is done by the software's built-in intelligence. I then follow with charts and graphs over eight critical categories that cover:
CAPABILITIES, FLEXIBILITY AND POWER: This area is critical. Study it carefully. Look for options and features that speed things up and allow you to do sophisticated "what if" analyses.The following are some of the things that make the IPS Real Estate Investment Software Model so powerful, flexible and easy to use:
- Data Input Simplicity and Flexibility: All Input Data is color coded and in one place. Single click buttons and mouse drags can speed-up input in out years. The entire input sheet can be input in a few minutes. Five sample data sets are provided and explained in detail in the documentation.
- Easy Operation and Navigation: Operating the model revolves around three things: 1) inputting data; 2) running the model; and 3) viewing, and/or printing reports. All other functions and capabilities revolve around these simple concepts. Running the model is can be run by point and click from the Control Center, from anywhere in the model from a command bar, or by shortcut keys (for the keyboard junkies).
- Allows multiple properties and other assets that can be placed in service at purchase or in the future. Allows for easy asset exclusion via on/off switch which is a big time-saver when looking at multiple scenarios and don't want to re-input asset data detail.
- Allows multiple loans (interest only, conventional, or conventional with balloon) which can have variable rates and allows for year by year pre-payment if desired. Like assets, I again allow an on/off switch to exclude loans which is extremely useful for looking at different alternative loan levels, points and closing costs without having to re-input the original data all over again.
- Allows for year-by-year input
- Revenue or gross rents can be derive with growth rate, direct input, or optional rent-roll.
- Expenses can be derived with growth rates or as a percent of rents (revenues). Extraordinary Income and/or Expense items are also provided.
- Goal Setting Options: You can direct the model with two simple inputs to automatically increase or decrease rents (or increase or decrease expenses if desired) such that you -
- earn an exact target Capitalization Rate
- earn a minimum but not maximum target Capitalization Rate
- earn an exact target Before-tax Cash-on-Cash Return
- earn a minimum but not maximum target Before-tax Cash-on-Cash Return
- earn an exact target Gross Operating Margin
- earn a minimum but not maximum target Gross Operating Margin
- earn an exact target Gross Income to Market Value Ratio (inverse of Gross Rents Multiplier)
- earn a minimum but not maximum target Gross Income to Market Value Ratio (inverse of Gross Rents Multiplier)
- Automatic Financing: Automatically finances cash flow short-falls and either pays out cash surpluses in the form of Dividends from the project or accumulates cash in an internal cash investments account. Uses built-in intelligence and user parameters to decide how.
- Simulation Capability: The model not only provides "Accept/Reject" analyses as most models do, but also can be used for
i.e. the ability to simulate real world situations and real world decisions.
This requires that the model allow all variables to interact with each other. For example, if additional cash is needed and short term debt is used to finance it, interest expense will increase, which in turn increases cash flow. The balance sheet must therefore tie to the income statement and cash flow statement. This is not easy and is why no other package has a balance sheet. But these are the real world decisions that must be made by you the investor. I explicitly show you the implication of these decisions and allow you to vary your assumptions regarding these decisions so that you can see exactly how you can improve your position.
- E-Mail Selected Reports: The IPS Model has an option to automatically copy user selected reports to a new workbook for e-mailing.
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THE NUMBER OF YEARS OF ANALYSIS: The number of years for an analysis may sound like a minor issue, but it's worth a little review. Some software packages only go out five years. That's not enough for a good financial analysis. In my opinion, ten years is a minimum.
At the other end of the spectrum, you'll find some competitors who would have you believe that the more years the better. Some say they go out thirty years, as if that were a feature. At some point, adding more years of analysis just doesn't get you anything. In addition, twenty and thirty year graphs and reports move the user's focus from the most likely holding period possibly obstructing graph shapes (e.g. coverage ratios will approach infinity leaving you to squint to see the crucial years).The IPS Real Estate Investment Software Model goes out fifteen years. Why 15 years?
- The average length of time that an investor holds a real estate investment property is seven years. I more than double that.
- This is sufficient and yet keeps the user's focus on the critical years as well as the most likely holding period.
- Fifteen years fits nicely on one landscape page, where I organize the years in five year increments (first 5 years, middle 5 years, and last 5 years).
I do do some alternative analyses that discount cash flows out into infinity (as a check on appreciation assumptions and the "greater fool" problem).
Also, the model does have separate programs that do go out thirty years, like the "Mortgage Calculator", but the model itself limits reports and graphs to 15 years.
Should clients wish for more years, I would entertain providing a special version since extending the model to 20 or even 30 years would be rather trivial.More important than number of years, however, is for the model to provide for a sale of the property in each and every year. Some real estate programs make you choose the year of sale. Avoid these programs.
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