• Overview
• Comparables
• Demographics
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• Purchase Costs

Forecast Income from the Property

The Forecast Income Statement for real estate rental property is an important financial statement for any property investor. And examines the income you will receive each year from rental income. If your after-tax cash low is negative in the first year of operation, then you will be feeding the property to keep it going. A positive after-tax cash flow indicates a profit. However this is not a static statement. And certain parameters can be edited to reflect your specific investment position and assumptions you have about the market. The parameters you can change are indicated in red with the term "Edit" alongside the relevant row. Whatever changes you make will affect not only your Forecast Income Statement but also the different risks that are measured and scored. For instance if you change the "Duration To Exit" to 36 months.. the Loan to Value to 95%... and the Hurdle Rate to 7% the complete risk model is adjusted.  Your Cash Flow Statement and relevant ratios will change. All your Risk Categories and Elements will change in the Deal RIsk Evaluation tab. And all the information in NPV And IRRProfile of Deal tab and Comparable Risk Analysis tab will also change to reflect your investment  specific profile.

 

Forecast Cashflows to the Investor

Your Cash Flow Statement calculates the different investment ratios important to your overall investment decision. And helps distill information for simple comparative analysis. This is not a static statement. And any input variables you edit in the Forecast Income Statement will affect all the information in this Cash Flow Statement. For instance, if you increase the Loan to Value above the Forecast Income Statement, then you will see an immediate change in the Ratios such as Cash on Cash Return.

What are your risks in this deal?

There is no such thing as a risk free investment. Because there is always a trade off: Deposit your money in low return money market funds and you more or less eliminate the risk to the principle you invested. But you run the risk of inflation eroding any returns you make. And also eroding the value of your principle capital. You could also run the risk of regulatory risk that may impact how and where your money is invested - including tax that you may have to pay. For risk averse investors, these are acceptable risks - despite the downside. Property investment is no different. And regardless if markets are rising or falling, there are risk factors to consider. Whatever your investment profile this section helps you to evaluate the different risk factors inherent in property investment. And scores each risk category to help you decide the value of the risks you face.

Your investment returns

All investment decisions must be undertaken with a clear understanding of the exit route options available. This section demonstrates the NPV and IRR levels against each possible year of exit for the investor. This helps you to determine, based on your personal cash flows, what would be the best time for you to exit the property. The exit values for the property at each time juncture is determined using the capitalization ratio at the point of purchase.NPV (Net Present Value) is a widely understood indicator to determine the profitability of investment decisions. It is best understood as the net financial worth gained from an investment over a period of time in present value terms.  To calculate NPV cash flows across the full timeframe of an investment are taken into account. A positive NPV is indicative of the investment being profitable and a negative NPV otherwise. Assuming all other factors constant, the higher the NPV, the better it is for the investor.IRR (Internal Rate of Return) is used in a range of investment decisions as a benchmark for returns expected from a project. The IRR is the discount rate at which long term cash flows from an investment reaches zero. For example if an investment shows an IRR of 15%; this is the discount rate at which the cash flows of the investment net off (at zero) in present value terms. In comparison if the rate is 10% this means it takes a lower discount rate to net off the investment’s cash flows. Because of this, the higher the IRR; the more attractive the investment prospect is. IRR is often compared against an expected rate of return from an investment. The higher the IRR is against an expected rate of return, the better it is for the investor.

Compare this deal against other deals

Holding all other financial assumptions constant, this section compares the NPV of similar properties against the deal. Whilst a host of other risk factors must be taken into consideration, including the volatility of returns, this is a broad indicator that helps you to determine whether the deal’s NPV is comparable with similar deals. Is it way above the rest or unusually low? Have a look and know for sure that this is the right deal for you.

 

Short-Long Term Risk Score Comparison This section is an important analytical tool for you to determine the deal’s short and long term risk score against deals within a similar investment (value) range. You should consider your personal ability and willingness to take risks in viewing these charts. It also helps you to decide if the same investment may perform better on a short term and a long term basis.

Short-Long Term Returns Comparison This section offers a useful comparison of returns on two levels: On one level, the relative performance over the short term to long term-it helps to answer to an extent, whether the deal offers better returns over the short term or the long term. On the next level, the section benchmarks the deal’s returns against other deals within a similar investment range.

 

Valuation Probabilities This section is a common sense valuation tool that estimates the value of the property based on the consolidated performance of deals in the quartile and the ZIP code. This provides an effective means to find out if the deal is over-priced.  If average indicators are above the deal-financials-based valuation, the property is under-priced. If the average indicators show a price less than what the deal financials offer, you might be paying more than what the average market rate warrants.

Risk/Return Point Return to Risk Point efficiency must be considered in any investment decision. It demonstrates the returns you gain per unit of risk. The higher the ratio, the more returns you earn per unit of risk. This section is a snapshot of the Return to Risk efficiency of deals compared. It's a perfect way for you to compare the return performance against risk on a short term and long term basis. It helps you answer important questions about the deal’s return and risk for the short and long term.