A statement of income and expenses for real estate commonly used by investors as a guide to evaluating the performance of rental properties is the Annual Property Operating Data, or APOD.
In this article we will look at the APOD and consider what it can reveal about a property, its construction, its strengths and weaknesses, and when it is best to use it when analyzing the profitability of an investment. real estate.
To begin with, understand that, just as the name of Annual Property Operating Data suggests, all financial data in an APOD is annualized. So when we talk about income, expenses, mortgage payment and cash flow, we are talking about an annual amount.
What the statement reveals
The popularity of an APOD actually lies in the fact that it gives an analyst a good first look at a property, as it projects income and expenses for just twelve months. It therefore acts somewhat like a “snapshot” of the financial performance of the property. When you look at the statement, you instantly see income, operating expenses, debt service (mortgage payment), and cash flow for a rental property.
Of course, all of this financial data is assumed (it may or may not be true), but more on that later.
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An annual property operating data statement, unlike other income and expense statements commonly associated with real estate investment analysis, is that it is usually constructed on one page.
It will show expected gross income (income generated from rents at 100% occupancy), vacancy pay (loss due to vacancy), other income (such as income generated from coin-operated laundries), operating expenses (detailed and total), debt service and cash flow without having to sort through two or three pages.
The purpose of the data is simple: income minus operating expenses minus mortgage payment equals cash flow.
Advantages and disadvantages
As noted, one of the key benefits of an APOD is that it can tell you quickly and in an understandable way what cash flow an income property could generate after the first year of ownership.
However, it does not include any tax shelter element. It won’t show you what cash flow you might expect to receive after paying taxes, or what your tax benefit or loss might be from owning the property. An annual statement of operating property data simply does not calculate or reveal tax issues.
APOD also does not take into account the time value of money. There are no calculations for compounding or discounting; the cash flow he assumes in twelve months simply represents what a dollar is worth today, not how much less it might be worth next year, perhaps after inflation.
Garbage in Garbage Out
Of course, much like any report used to assess the financial performance of investment property, an APOD is only as good as its data. Mortgage income, expenses, and numbers must be accurate (or at least reasonable) for cash flow to be accurate and/or reasonable.
As a result, no prudent real estate investor would ever base an investment decision solely on an annual property operating statement and, in fact, would undoubtedly have more questions about the property after reviewing the report than satisfactory answers. . But that’s what any preliminary information on an investment property is intended to do anyway, so that’s a good thing.
Okay, so when is the best time to present an APOD to a potential buyer? Include it in your initial presentation. As noted, this might not influence a buying decision (and shouldn’t), but if done correctly, this one-page statement of income and expenses can encourage a buyer to continue evaluating at what price. and under what conditions a rental property will make sense as an investment. And it’s a good thing.