Twenty years ago participants in the real estate investment process relied on a calculator and amortization schedule to create the analysis required to make informed investment decisions.

With the advent of the computer, however, real estate investment and participants in the investment arena has witnessed substantive change in the methods of analysis used in the real estate investment business.

Though the real estate investment decision process will continue to rely upon information retrieved from primary and secondary data sources, information is increasingly available that can be accessed via personal computers, and real estate investment software programs make it easier then ever to create and print a variety of investment reports.

For example, thanks to the computer, real estate investors and investment firms focused on the purchase, holding, and sale of investment properties are now able to use a variety of computer programs and real estate software solutions to compute and track the income, expenses, and cash flows of owned properties that assist with a myriad of investment analysis decisions.

Spreadsheet software is used, but it does involve a degree of spreadsheet experience and time for it to be useful in investment analysis.

As a result, those with less experience or less time available to devote to spreadsheets, are turning to proven and ready made investment analysis real estate software applications that are used in conjunction with the spreadsheet software.

These real estate investment software programs are easier to use because they require only the entry of information rather than the development of mathematical formulas or other algorithms that spreadsheets may require, and might offer–as does our real estate investment software–a variety of analytical diversity to support financial feasibility such as:

1. Computations and tables for time value of money.
2. Mortgage analysis with calculations made for mortgage payments under a variety of interest rates and amortization terms with both partial and full amortization schedules.
3. Depreciation schedules that provide information on annual depreciation deductions unique to a specific acquisition date of the investment.
4. Tax shelter computations that may provide outcomes resulting in lower income tax liability.
5. Computations for discounted cash flow that analyze an investment over the entire proposed holding period such as internal rate of return based on the investor’s initial equity contributions and net present value of equity based upon anticipated future equity returns; other various ratios, multipliers, and rule-of-thumb indicators.

With the rapid growth of the information superhighway computer-assisted real estate analysis and real estate investing software has become commonplace because the fast-paced investment process involves a more sophisticated understanding of an investment’s forecast performance.

Real estate software is in the future for real estate investment because it has greatly accelerated the ability to facilitate this increasingly more complex investment analysis.

You are looking seriously to purchase a duplex priced at $300,000 and feel that it is a pretty good deal. Moreover, the bank informs you that you might qualify with 10 percent down, or a first mortgage of $270,000, at a rate of 7 percent and a term of 30 years.

Okay, but what are you paying for the investment property, and will there be enough cash left over after making the mortgage payment to show a profit?

Let’s take a closer look and apply the Profit or Loss statement.

The rental property is estimated to generate $24,000 in gross income for the year and $8,400 per year in expenses. If you subtract the expenses from the income, it leaves a net operating income of $15,600 that can be used for debt service in one year—and the amount available for profit.

If you divide this number by 12, it will equal $1,300–which reflects the monthly amount available for debt service (your mortgage payment).

The next step is to determine how much money you can borrow with the $1,300 available for debt service, based on the rate of interest your lender is asking and the terms available to you through your lender.

The Amortization Schedule

Of course, you can use a mortgage calculator or real estate investing software to do it for you, but for our purposes, we will pretend you rather use an amortization schedule you obtained at a stationary store.

To continue, you open the amortization schedule and go to the page where you see the rate of 7 percent, find the 30-year column, and see what the $1,300 will buy for you in a loan.

After several computations, you determine that $1,300 in monthly payments equals $195,400 in borrowed money.

Is It a Good Investment?

The price of the property is $300,000, and the amount you can borrow to break even is $195,400. If you compute the difference, it leaves $106,400. This is the amount you would have to put down to break even–make no money and have no loss on the investment.

Here are your options. You can increase your chances for profit by putting the money down and reducing the debt service, or put less money down and experience a loss.

There are, of course, other options and some other aspects to consider while analyzing this rental property and determining whether this income property is a good investment or a poor one.

The point about real estate investing is this: figures don’t lie, and you always want the investment property to make sense based upon its performance, not yours. The numbers should depict how well the investment will feed you, not how well you can feed the property.

If you own a rental property with a vacant unit, it is tempting to show the unit off to the first prospective tenant who walks into the management office.

That, however, is not a sound procedure for real estate investors to adopt for a couple of reasons.

Qualify the Tenant

Before you show prospective tenants a vacant rental unit, have them fill out an application and then qualify them to make sure that they can afford the unit–otherwise, you are potentially wasting your time.

Moreover, by filling out the application, you accomplish one other important thing before showing the unit: You have a better idea of whom you are showing the rental to, including a name, address, and telephone number for security measures.

After all, you do not know who these people are, and unfortunately, people have been attacked and robbed by individuals to whom they were showing vacant units.

Prepare the Unit

Before you take someone to see the vacant unit, make sure that the unit is clean and well lit to make the best impression possible. Allow the individuals walk freely around the unit and be ready to answer their questions completely.

If the unit is occupied already, you should notify the existing tenant of your intentions to show the unit before actually bringing a stranger into his or her home.

In this case, set up reasonable times during the day and workweek that will enable you to show the apartment—preferably in the tenant’s absence so you can avoid possible negative input from existing tenants. Just be sure not to leave a prospective tenant alone in an occupied unit, and make sure no one touches any of the existing tenant’s belongings.

If you must show a unit while the existing tenant is home, make sure to be polite and show the unit as quickly as possible—tenants really do not like a walk-through by the landlord or anyone else.

Finally, make sure your showing of the rental unit is constant with every applicant. You do not want to get into trouble with discrimination laws by not showing certain applicants certain units or failing to answer every applicant’s questions about the unit with the same regard you would anyone else.

It has been stated previously. Real estate investing is like an onion–layer upon layer. Knowing how and taking care to show vacant rental property units is just one more layer.

When done right, however, it makes investing in real estate more profitable, and as a result, a lot more fun.