Real Estate Analysis – Investment Property Calculator blog
Info about Real Estate Analysis and Real Estate Investment Software

Depreciation (or sometimes called cost recovery) is the amount of the tax deductions that an investor can take each year from the depreciable asset, until this asset is fully written off. In Real Estate only the building part (not the land underneath it) can be counted for depreciation. The property can be depreciated over its useful life. The useful life is specified by the tax laws and usually is not the same as the expected actual physical life of the property. According to the current tax laws, residential properties are depreciated over 27.5 years in the USA and nonresidential (commercial) over 39 years. Closing costs and capital improvements are both depreciable in a similar way.

P/E (Price to Earnings) ratio is often used when measuring other investment tools, such as stocks. The Real Estate P/E ratio counts with the initial investment and annual net operating income. It gives an investor a good comparison of possible use for his money in other investments, especially on the stock market.

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Debt coverage ratio is the real estate ratio between the annual net operating income (NOI) and annual debt service (ADS) of the particular property. ADS is the total of 12 monthly mortgage payments. If NOI and ADS are the same amounts, DCR equals 1.0. This however would not be enough for a mortgage lender, who always requires some margin of safety and therefore DCR must always be higher than 1.0 (usually at least 1.20).

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I have some great news for all fans of this free property analysis software. Google has been updating page rank for many websites, and Real Estate Analysis FREE got a big page rank bump. We have upgraded from Page Rank 0 straight to Page Rank 4! That’s something pretty unusual, to have such a jump start and it’s all thank to you, who are linking to this great website and mentioning it on the forums etc. Definitely the article in Realtor.org also helped.

I have been checking our database statistics as well, and we have over 1000 properties analyzed in Real Estate Analysis FREE this year. That’s impressive. Keep supporting this tool on facebook and twitter, so more people will hear about this free software.

Also I am keen to hear any comments, suggestions or issues you have with this website! Just use the contact us form at the bottom of the page. Thank you again!

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Internal Rate of Return (annualized yield rate) is a rate which an investment will return over the estimated period of ownership. It is in fact the discount rate that produces NPV of zero and profitability index of 1.0. There are a few setbacks when using IRR, such as dual IRR in certain cases or problems with negative cash flows in the future.

There is no simple equation for calculating IRR, however when using some programming language for the calculation, the method of interval halving can be used. Fortunately for all of you, RealEstateAnalysisFREE software calculates IRR for you, in matter of seconds!

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Profitability index (profit index) is very similar to NPV. It also calculates with the present values of future cash flows and discount rate, therefore it takes in account the time value of money. Profitability index is a ratio which shows if the present value of the cash flows is worth the initial investment. If these values equal (NPV = 0) profitability index will be 1.0. The advantage of using this ratio when comparing different investments is the fact that it tells the proportion of money returned to money invested, rather than the amount as NPV does. This way you can easily compare two investments opportunities which require different initial investments.

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Net Present Value is probably the best measure of any investment thanks to its complexity. It takes into account all the future cash flows including the selling price, and it converts all these amounts to their present values using discount rate required by the investor. In contrast with most of the measurements, NPV counts fully with the time value of money.

NPV is calculated as a total of all future cash flows discounted to their present values using appropriate discount rate, minus initial investment (CF0). Discount rate (i) is a rate of return that could investor earn on alternative investment with a similar risk (i.e. on financial markets).

Zero NPV indicates that the investor is earning exactly the discount rate. Negative NPV means that an alternative investment with the same rate of return as the discount rate would be a better investment. On the other hand positive NPV tells the investor how much he could have paid more to still achieve the requested yield (discount rate) and negative NPV tells how much less he should pay to achieve the same.

I hope you enjoyed the short article about NPV. By the way, this is where lot of Real Estate Investment Software products differentiate, lot of the low quality tools do not even mention NPV, which definitely a big mistake and can make the investor doing foolish decision on non sophisticated return calculations. Beware of these tools and make sure that they offer NPV calculation. Or simply use the free Real Estate Analysis FREE on this website!

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Another great news for RealEstateAnalysisFREE.com, an online magazine for national association of Realtors published a short article about our free property analysis tool. It was published in the section of “Cool Tools”, where realtors can find some interesting tools and tips every month.

Investors require extensive financial information about properties, such as the internal rate of return or net present value. And that can be hard to calculate without any help. Real Estate Analysis Free is investment software that quickly analyzes property data to produce sophisticated facts and figures.

Here is the link to the June issue of “Cool Tools”:

http://realtormag.realtor.org/technology/cool-tools/article/2011/06/perfect-color-match-flower-power-and-investment-property-analy

Many thanks to the editors for picking our tool! It means a lot and hopefully will help to spread the word about the best free real estate investment software!

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I am excited to show you people the first video tutorial which was submitted last week! It is definitely a great job done by: jordan. You can visit our real estate analysis youtube channel or simply check the tutorial in the video player below. I am sure that this will make it even easier for some users to discover the simplicity of property analysis with our free real estate investment software.

If there are other investors using our software, who have video editing skills – I will be very glad to receive other tutorial videos. The best video will be posted on our home page and your name will be just underneath it! Thanks!

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I have finally created a YouTube channel for Real Estate Analysis FREE this weekend! YouTube channel can be a great addition to our real estate investment software . Especially if we could create some interesting videos for our users. As you can see, I have created a simple welcome video by myself, but my idea is more now about creating Tutorial or “How to” videos about our property analysis tool. I think that it could really help to some of the folks using this software, to see an example of how simple and fast it is to perform the property analysis of their investment properties. For me, it takes about a minute to add in all the values and hit the “Analyze property” button. But I know that some people are still struggling a bit.

And therefore I have decided to ask you guys, fans of Real Estate Analysis FREE, who are using the software and have the ability to record screen capture videos – to help me out and create a simple “tutorial” video, how you add a parameters of an investment property and analyze it. Once you will send me the videos, I will post them on our blog and will give you all the credit for them. The best video will be then placed on our homepage and in the FAQ section. This can work as a little advertisement for people who do record such videos and tutorials, and need some more customers.

If you will decide to help out, I would like you to use the parameters saved in the file below for the sample property:

http://www.realestateanalysisfree.com/blog/tutorial_property.txt

http://www.realestateanalysisfree.com/blog/henderson.jpg

I will appreciate your help guys, send me the videos and I will keep everybody updated!

And not to forget, this is the new youtube channel:

http://www.youtube.com/user/RealEstateAnalysis1

You can subscribe to be always first to know about the new videos! Thanks!

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