Financial Analysis of Real Estate
To maximize your returns when investing in real estate, it is important to dissect the figures pertaining to your future real estate purchases just as you might do with stock holdings.
Once you have established the suburb that you are going to invest in (the factors you should take into consideration when deciding upon a target area form part of our choosing investment properties article, but fall outside the scope of this article), you should bring along a broad Inspection Checklist which you can tick off whilst inspecting each property.
You could create your own such checklist sheet, find one on the internet, or instead use a real estate analysis program intended for this purpose.
One such award winning program is the POSH Property Owner System. POSH Property Owner System is actually two programs in one, as it contains a Real Estate Analysis Module, as well as a detailed Management Module.
The complete workflow of the software is actually designed to imitate the real estate investment progression from inspection, thru to procurement, funding, renting out, and lastly selling.
The Analysis Part enables you to analyse and evaluate many prospective purchases against one another with a detailed Inspection Checklist which you can print out and take with you when viewing prospective acquisitions.
Later on, upon returning to your house or office, you can submit your entries into the program in order to evaluate gross vs net yields, dollars per square meter, PE ratios, internal rate of return, forecast capital growth, and before and after tax cashflow. The reports it then outputs will enable you to scrutinize and evaluate multiple prospective purchases against one another.
Beyond the analysis facets of the program, it also enables you to manage your real estate portfolio by allowing you to enter and keep track of all revenue and outgoings pertaining to each of your properties. This includes such things as loan interest and associated loan and refinance costs, tenancy and lease information, property management expenses, council and water rates and insurance, and maintenance expenses.
Once entered, Posh Property Software Program allows you to output detailed income and expense reports, depreciation schedules, rental receipts, and can estimate your capital gains tax you would need to pay upon disposal. Another function enables you to generate a detailed budget and contrast it, as time passes, with your actual income and outgoings.
Along with the benefits sumarised above, using a program like POSH will also make your workload lighter at tax time. With all of your income and expense data pre-entered as it was incurred during the course of the previous year, you only need to press a few buttons to generate a handful of reports to bring to your accountant, and these will hold all the data he or she is likely to require to prepare your annual return.
Maybe you are not preparing to be the next No Money Down Rick Otton in real estate investment, with dozens of properties under your belt, but you need not be in order for POSH to be of noteworthy assistance and benefit to you. Property investment is a capital intensive activity, so the cost of a software program like the POSH Property Owner System is trivial when measured against with the monetary benefit you could derive from the education and breakdown provided in the Analysis Module of POSH in assisting you to decide on a property that is liable to better the others in a given locality.