Annual Property Operating Data
(APOD)
An annual property operating data sheet is a detailed cash flow statement
based on estimated income and expenses over a twelve month period. It includes
proposed financing figures and a potential before tax cash flow. It may also,
for the purpose of calculating potential cost recovery (depreciation), show the
allocation of value between land, improvements, and personal property. The
information contained in this report can be used by investors and their
financial advisors to determine the suitability of an investment.
IEIP has demonstrated the consistent ability to reduce operating expenses for
income producing properties owned by small, medium and large investors. An IEIP
analysis of one to two years of operating expense history typically brings to
light areas where greater efficiencies can be achieved.
We are aware of many unique expense aspects involved with smaller multifamily
income properties as compared to medium to larger properties... the IEIP team is
well versed in the trouble spots typical associated with multifamily income
properties and the appropriate expense levels to run them. This experience will
help you We can assist and train property owners on budget development and cost
savings procedures.
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Proforma Analysis
Though it is an opinion or estimate, the potential income a property owner
can experience is the goal of a Proforma Analysis. Typically, a Proforma
Analysis is compared to current or actual performance of a property. Sometimes
referred to as a Property Data Sheet as mentioned in the valuation analysis,
accurate data is very important.
Market Rent Analysis
Most property owners understand the importance in having up-to-date rental
market information. As a standard service to IEIP clients, IEIP conducts rent
market research on surrounding income properties which would be most comparable
to the subject property. These market surveys determine market rent terms for comparable properties in
the area so to best determine the current and proforma performance of a property
along with its relative marketability.
Valuation
Performance Analysis
Determining the value of income property is achieved by using the Gross Rent
Multiply (GRM) method, Capitalization Rate (Cap Rate) method, Cash on Cash (C/C)
method and Debt Coverage Ratio (DCR) method.
GRM Method
The GRM method is a quick and easy because it uses the information from Gross
Scheduled Income in a typical cash flow model. Typically, the value of an
investment property can be determined by multiplying a specific gross rent
multiplier by the properties expected first year gross scheduled income. The
higher the GRM, the higher the asking price. But that's not what buyers are
looking for. Typically they are looking for properties with low GRMs.
Pros: The GRM method is a convenient tool because of simplicity
Cons: GRM method is limited because it does not take into account
vacancy, uncollected rents, operating expenses, debt service, tax implications
as examples.
Cap Rate Method
Many
appraisers and investors use the Cap Rate method to establish the value
of an income property. A Cap Rate is the ratio between the first year net operating
income (NOI) and the purchase price of the property. Cap Rates are market
specific and can vary from neighborhood to neighborhood or even street to
street. The are affected by the principles of supply and demand and can vary
significantly according to perceived risk. In addition, different investor's may
have different Cap Rate requirements. The Cap Rate method is also a useful tool
in comparing various properties in terms of their NOI performance in specific
markets.
The lower the Cap Rate, the higher the sales price. The higher the Cap
Rate the lower the sales price. Sellers want buyers to accept the lowest
possible Cap Rate but from the buyers point of view, the higher the Cap Rate,
the more attractive the investment property becomes.
Pros: The main advantage of using a Cap Rate method is it's
simplicity. It accounts for vacancy and operating expenses.
Cons: The reliability of using a Cap Rate is limited because it only
looks at a one year forecast and does not take into consideration any financing
or tax implications.
Cash on Cash Method
The Cash on Cash methods involves measuring the investors initial investment
to before tax cash flow.
Pros: Cash on Cash takes into account vacancy and uncollected rent,
operating expenses and debt service.
Cons: Cash on Cash does not take in to account anything past the first
year forecast nor doe sit consider tax implications.
Debt Coverage Ratio Method
When 5 or more units are involved, lenders typically use Debt Coverage Ratio
in their lending guidelines. Because income and expenses can and do vary, from
month to month, lenders reduce their risk by making loans where the Annual Debt
Service (ADS) is typically less than the NOI. Clearly the lenders goal is to be
sure the income produced by the property is more than enough to cover the
mortgage (ADS). Though lender criteria can change according to market
conditions, lenders typically like DCR ratios between 1.1 and 1.3 for low
risk properties. The higher the DCR the less the lender risk.
To
schedule this service, Tell Us About
The Property via this link or call us at 949 422-2319.
