ProAPOD real estate investment software released a new update for one of its real estate investing software solutions today. ProAPOD CFA 7.0 needed a modification on the Sale Report so the “Capital Gains” label would show the correct percentage entered in the Tax Profile form. This correction was only required for the label, however (the computation was correct). The download is available free to those currently using ProAPOD CFA 7.0.

Thank you for your patience, and thank you for choosing ProAPOD. The best and most affordable income property financial analysis software solution of its kind on the market today (so I’m repeatedly told by realtors and investors that use my program).

Unless you live in a vacuum, you probably know that the residential housing boom we enjoyed over the past several years is running out of gas and stalling. How bad is it? According to the National Association of Realtors it’s bad. Here are just a few of the statistics.

1. Home prices are projected to fall for the rest of the year
2. The supply of homes for sale are at a 13-year high
3. The median-priced U.S. single-family detached fell 1.7% in August compared to a year ago
4. Prices haven’t fallen nationally since April 1995 (the second-steepest in 38 years)
5. Sales of new and existing homes, as well as building permits and new construction, are all off 10% to 25% in the last year
6. There’s now a 7.5-month supply of homes for sale, up 60% from last year

In other words, the bubble has burst, single-family home sales are declining, and experts are saying with inventory still rising, there is no chance of any short-term relief. Almost overnight, its become a buyer’s market, and sellers, if they want to bring buyers back to the table, will have to lower their prices.

Okay, so what do we do? Here are a few suggestions.

1. Consider making rental property a portion of your business. You might call it diversifying your portfolio, or as the proverbial saying goes “not putting your eggs all in one basket.” If you haven’t done so already, start working with real estate investment property more proactively. One or two sales of a rental property can easily help offset commissions you might otherwise lose from your single-family home business.
2. Watch for rental investment property to become more active. Think about it. Interest rates are still very good and some homeowners may decide not to sell their homes (at a lower price) and opt instead to use their equity to purchase rental property.
3. Look for some homeowners that might choose to sell their rental property in place of their homes.

Prepare To Meet With Rental Property Investors

1. Acquaint yourself with your local market. Get an idea about what residential income property has been selling for. A good source would be a local appraiser that has experience evaluating apartment buildings.
2. Learn a little something about the most common terms used for evaluating income-producing property like capitalization rate, internal rate of return, and annual property operating data (APOD). You don’t have to become an expert, you just want to be sure you don’t look like a deer staring into the headlights of a car when its brought up.
3. Invest in a good real estate investment software program so you’re prepared to present professional rental cash flow analysis reports. First impressions are crucial, and being able to give professional property analysis reports to buyers and sellers when you first meet with them can surely make the difference.

Of course it’s not the end of the world. The sky isn’t falling. We’ve all seen real estate cycling up and down for years. But we must face the reality that this is a real estate down turn and becoming a more full-service realtor may help you survive it. Besides, you might not only do well working with residential income property, you might like enough to devout some portion of your future business to it regardless of home market trends.

As stated in an earlier post, depreciation (or cost recovery) is an allowable tax deduction real estate investors should always take advantage of on rental investment properties that they own each year based on the asset’s useful life as specified in the tax code.

What is Useful Life?

For tax purposes, a property’s useful life (not to be confused with its physical life) varies according to one of two classifications created for income property: Residential property (where 80% or more of the gross income is derived from dwelling units; except for such dwelling units as motels and hotels which are classified as nonresidential by the tax code) is 27.5 years, and nonresidential property is 39.0 years. For example, the Depreciation Allowance (annual) for a duplex would equal Depreciable Basis divided by 27.5 years, and for an office building it would equal Depreciable Basis divided by 39.0 years.

How To Calculate

1. Determine the depreciable basis by separating the value of the improvements from the value of the land. For example, assume you purchase a rental property for $300,000 and attribute $210,000 to the building and $90,000 to the land. The depreciable basis would be $210,000.
2. Determine the useful life according to the current tax code. (It will be either 27.5 years or 39.0 years depending on your property’s classification).
3. Apply the formula. For example, let’s assume the property you purchased for $300,000 is a duplex. The formula would be: Depreciation Allowance (annual) = Depreciable Basis / Useful Life. Or, Depreciation Allowance (annual) = $210,000 / 27.5 = $7,636.36.

Of course there are other considerations to factor in like the month you place the property in service and mid-month convention, but we’ll discuss that in the next publication. So stay tuned. In the meantime, you might want to preview some reports at the ProAPOD website where depreciation has been computed (go to the website and follow Reports).