An APOD (an acronym for "Annual Property Operating Data") is one of the most popular reports in real estate investing. Namely, because it gives the real estate analyst a quick evaluation of a property's performance for the first year of ownership.
An APOD serves as the real estate equivalent of an annual income and expense statement yet is more of a "snapshot" of a property’s annual income and expenses. Moreover, an APOD only projects property performance during the first year of ownership and ignores tax shelter consideration.
Nonetheless, because it does reveal income, operating expenses, net operating income, debt service, and cash flow concisely, it does serve investors well as a good "first-glimpse" of the investment opportunity.
A well-constructed APOD is best for comprehension. Obviously, the clearer annual property operating data is presented the easier the determination of property performance. In truth, however, the emphasis is on correct numbers, not style. Yes, you can in fact construct an APOD on a napkin as long as the numbers are meaningful--though it may tarnish your image to present a napkin to colleagues and customers.
Here's how to construct an APOD (just remember to include annual not monthly amounts).
1. Show the income derived from rents. This is known as Gross Scheduled Income (or GSI), and should represent the sum of all annual rents as if the units were 100% occupied. In other words, include an annual rent even for vacant units. In this case, you can use any rent you like (perhaps a market rent) just as long as it is realistic.
2. Show an amount for vacancy and credit loss and deduct it from the gross scheduled income to compute Effective Gross Income (or EGI).
3. Show the income generated from other sources (if any) such as laundry income and add it to EGI to compute Gross Operating Income (or GOI).
4. Show the operating expenses such as property taxes, property insurance, utilities, trash, repairs and maintenance, property management, advertising, landscaping, and so on. Do not include debt service. Compute and label the total as Annual Operating Expenses.
5. Deduct annual operating expenses from GOI to compute Net Operating Income (NOI).
6. Deduct the annual debt service (mortgage payment) from NOI to compute Cash Flow Before Taxes (CFBT).
For good measure, you might want to add a computation for cap rate, gross rent multiplier, and cash on cash return. This is not necessary, but it does create an APOD that will make you proud to present to customers and lenders.
Be sure to preview a sample APOD by following the link below.
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