3 Real Estate Analysis Mistakes to Avoid

Strange as it may seem, there are times when you should avoid using the "real" numbers in a real estate analysis. Discover what these numbers are and how you should enter them in your next real estate analysis.
Working with real estate investment property, I've been in the position over the years to see hundreds of APODs, Proformas, and Marketing Packages created by colleagues for promoting their income property listings.
Presentations are sometimes top-notch, but it's also common to see a string of mistakes made in those real estate analysis presentations as well (especially by investment property novices). In this article, we will look at three of the most common mistakes and consider how to correct them. Before we do, however, we should understand why a correction is crucial.
Bear in mind that real estate investing requires accurate income and operating expense numbers to make prudent real estate investment decisions. In some cases, it's just a matter of showing current figures in the real estate analysis, such as current rents or current property tax, for example. In this case, the "real" number is what it is, and the real estate investor would want the bottom line to reflect that number.
In other cases, though, the "real" number is not the number to include in the real estate analysis. Strange as it might seem, some numbers used in a real estate analysis, if "real", can actually skew the bottom line and create distorted returns.
Okay, let's look. Here are three of those numbers.
1) Vacancy rate - the tendency for many is to show a vacancy rate based on the past performance of the rental property-sometimes even at zero percent! This is not realistic, however, because market conditions, property wear and tear, rent increases, and even a change of ownership can (and often do) cause vacancies. It is always prudent in real estate investment analysis, therefore, to include an allowance for vacancies characteristic to the local market.

2) Maintenance and repairs - it is a mistake to show the amount actually spent over the past several years for maintenance and repairs. It is helpful for a real estate investor to know what an owner has done to upkeep the property, but past expenditures are not necessarily relevant to what a new owner might spend in the future. The current owner, for example, might be a repairperson capable of keeping maintenance and repair costs reduced, whereas the new owner might be required to contract it all out at top dollar.
3) Replacement reserves - most tend to ignore this altogether because reserves for replacements are not a fixed reoccurring expenditure like property taxes, utilities, or trash. It is, however, wise to include an allowance for reserves in a real estate analysis because it provides for future replacement of worn out items an owner must eventually pay for, and therefore it's best that an investor plan ahead to spend it.
A local real estate appraiser or real estate agent who understands rental property can advise you concerning these numbers. Here's what you want to know. (1) Typical vacancy rates in the area for whatever-type property you want to analyze; (2) Typical percentage used to estimate maintenance and repairs (you should get one percentage for brand new or newer units and another percentage for older units); (3) The dollar amount per unit per year to include for replacement reserves.
Don't hesitate to call and ask them. If you are serious about working with real estate investment property, and want to present a real estate analysis with the most appropriate numbers and returns, it's imperative that you avoid these rookie mistakes.
Here's to your real estate investing success.

Article Source: http://www.moneyarticlelibrary.com

James Kobzeff is the developer of ProAPOD - leading real estate investment software since 2000. Create rental property cash flow, rate of return, and profitability analysis presentations in minutes! Go to => www.proapod.com

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated

Click the XML Icon Above to Receive - Real Estate Investing Articles Via RSS!

Additional Articles From - Home | Real Estate | - Real Estate Investing

• European Forestry Investments - By : Wouter Bakker
  
• British Buyers Lead Monaco Property Surge - By :
  
• Three Ways To Maximise Your ROI When Purchasing Investment Property – Part 1 - By : Joel Teo
  
• 3 Reasons To Invest In Dubai Investment Property - By : Joel Teo
  
• Three Ways To Maximise Your Roi When Purchasing Investment Property – Part 2 - By : Joel Teo
  
• 5 Pitfalls To Avoid When Searching For Your Next Investment Property - By : Joel Teo
  

Related Articles:

• Understanding Resell Rights & How To Create Your Own Resell Rights Products
• Get Rich Quick Scams Revealed!
• The Joys Of Owning Virtual Real Estate
• +Serious Questions Answered On Real Estate Investing
• How To Succeed In The Money Game. Secrets To Success
• Get Rich Quick Scams Revealed!
• +Serious Questions Answered On Real Estate Investing