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Property Modeler is Property Master™'s exclusive evaluation tool. You can use Property Modeler to project the performance of rental properties in the next year, five years from now, or ten years from now. You can even compare multiple properties to see which is the best performer.
Not only will Property Modeler help you pick the best property deal, it may help with negotiations - by showing a seller exactly why the deal doesn't work at the price he wants.
You can try Property Master™ by clicking here
or learn more about Property Modeler below.
Property Master™ is not providing investment advice and we strongly recommend you consider all factors when buying a property, including non-financial factors. Property Modeler calculations are not guaranteed.
How it works
When you are considering a property purchase, you'll have access to a great deal of information. From the seller, you'll get a rent roll, a summary of expenses, and probably a pro forma statement. You can also get property tax information from the city or town, an insurance quote, a financing estimate, and more. Your next job is to calculate the mathematical formulas that will determine if the deal makes sense. Property Modeler will perform these calculations for you and add some extra twists to make the projections even more accurate.
Because Property Modeler is part of Property Master™, your predictive methods can include real-world historical data from other properties you already own. This can help you avoid mistakes that will skew your projections - predicting a vacancy rate that is too low, or an annual increase in rent that is too high, for example.
Start by entering property details such as property type (Residential or Commercial), purchase price, assessed values for land and structures, and more. Then set prediction preferences. Would you rather use the best case, or most optimistic, prediction; the worst case; or the middle scenario?
Finally, run any of the seven different Property Modeler reports. Here are the different calculations you'll see on the reports:
Annual Gross Income for Year
The total of gross annual rent and other income for the year in question.
Annual Gross Rent Multiplier
The purchase price divided by the Annual Gross Rent. Lower numbers are desirable.
Before Tax Cash Flow
Net Operating Income - Debt Service. This is the most accurate calculation possible of your actual cash flow for the year.
Before Tax Cash Flow for Year
Before Tax Cash Flow for the year in question.
Break Even Point
Calculated as the year in which the property will first have a positive Before Tax Cash Flow. The Break Even Point will be reported on Property Modeler reports as either "Year -" with the appropriate year or as "Greater than 30 Years." A lower Break Even Point is desirable; for example, a property with Break Even Point = "Year 2" is preferred over a property with Break Even Point = "Year 7". A property with Break Even Point of "Year 1" will have positive cash flow in the first year of ownership.
Cap Rate
Net Operating Income divided by Purchase Price. A higher Cap Rate is desirable. Cap Rate will be negative if Net Operating Income is negative.
Cap Rate Incl. Other Costs
Net Operating Income divided by Purchase Price plus Other Costs. A higher Cap Rate is desirable. Cap Rate will be negative if Net Operating Income is negative. This is a more accurate picture of Cap Rate because it includes other costs involved in buying a building and renovating it as necessary.
Cash on Cash Return
Before Tax Cash Flow divided by Total Initial Investment. This will be negative if the Before Tax Cash Flow is negative. A higher number is desirable.
Cash on Cash Return is roughly comparable to the rate of return you see for other investments such as mutual funds, except that it does not incorporate depreciation (which reduces your stated income for tax purposes), or increased equity in the property because of appreciation or payments against principal.
Cash on Cash, Total Period
The sum of Before Tax Cash Flow for all years up to and including the year in question, divided by Total Initial Investment. A higher value is desirable. This is roughly comparable to long term rate of return as seen for other investments.
Debt Coverage Ratio
Net Operating Income divided by Debt Service. A higher number is desirable.
Debt Service
What is spent each year on payments for any debt you owe on the property. Debt Service includes principal and interest.
Debt Service for Year
Debt Service for the year in question. Debt Service may change from year to year if loans have adjustable rates.
Depreciation for Year
The total depreciation deduction you can claim for the year. A higher number is desirable.
Gross Rent (Annual or Monthly)
Rent that does not include a discount for vacancies. In an actual property where the total annual rent if all units were rented was $48,000 but there was a 5% vacancy rate, the Gross Rent would be $48,000 and the actual rent would be closer to $45,600.
Monthly Gross Rent Multiplier
The purchase price divided by the Monthly Gross Rent. Lower numbers are desirable.
Net Operating Income or NOI
The income for the property with gross rent, vacancy rate, other income and expenses included in the calculation. Debt Service is not included. The calculation is (gross rent * (1 - vacancy rate)) + other income - expenses. For example in a property where the gross rent was $48,000, the vacancy rate was 5%, the other income was $2,000 and the expenses were $21,000, the calculation would be ($48,000 * (1 - .05)) + $2,000 - $21,000 or $26,600.
Net Operating Income or NOI
The income for the property with gross rent, vacancy rate, other income and expenses included in the calculation. Debt Service is not included. The calculation is (gross rent * (1 - vacancy rate)) + other income - expenses. For example in a property where the gross rent was $48,000, the vacancy rate was 5%, the other income was $2,000 and the expenses were $21,000, the calculation would be ($48,000 * (1 - .05)) + $2,000 - $21,000 or $26,600.
Net Operating Income for Year
Net Operating Income for the year in question.
Operating Expenses for Year
Expenses for the year in question.
Principal Remain, Period End
The principal that is still owed on the loan at the end of the multi-year period.
Purchase Price plus Other Costs
The purchase price for the property plus any closing costs and initial repair expense. Closing costs include points.
Rate of Return Not Incl. Taxes
For a multiyear period, the total rate of return on your investment assuming you sold the property at the end of the period. A higher value is desirable. Rate of Return is calculated as:
((Taxable IncomeYear End Resale Price * (1 - Sales Transaction Pct)) - Principal Remaining)
/ Total Initial Investment) - 1
Taxable Income
Calculated as Before Tax Cash Flow + Principal Repaid - Depreciation for the year. A higher number is desirable.
Total Initial Investment
The down payment for the property, plus any closing costs and initial repair expense. Points are included as part of closing costs but you record them separately.
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