Real estate investor software solutions

Sensitivity analysis involves changing one variable at a time over a possible range of outcomes to evaluate the effect of that change. This allows real estate investors to review each variable's impact upon the investment property's present value and determine the best possible scenario for buying or selling investment property.

Sensitivity analysis has become more popular today because of template-based spreadsheet software. Whereas, calculating and recalculating a range of variables was quite tedious before computers, software now enables investors to do it quickly.

Here are three elements you might consider for sensitivity analysis the next time you're evaluating an investment property opportunity. The procedures are drawn from ProAPOD® Real Estate Investment Software primarily because I'm not aware of how other software solutions might provide this feature.

1) Price Sensitivity Analysis

Changing a property's sale price incrementally, with outcomes for such things as cash requirement, loan amount and mortgage payment, cash flow before tax, cap rate, and cash on cash can be very useful.

Suppose you're evaluating a property priced at $500,000 and want to know what affect a range of prices incrementally stepped $5,000 would have on the cap rate. That is, you want to see what the cap rate would become if the price was lowered to $495,000, $490,000, $485,000 and so on, or raised to $505,000, $510,000, $515,000 and so on.

To conduct your sensitivity analysis, you would simply enter $5,000 in the form as the amount you would like to "step" the price (or variable) and the Price Sensitivity report will display a list of prices ranging from $385,000 to $615,000 along with the appropriate outcome for each price.

2) Down Payment Sensitivity Analysis

The down payment sensitivity is similar and equally easy. But in this case, you would change the down payment amount incrementally to evaluate outcomes for cash required, annual loan payment, debt coverage ratio, cash flow, and cash on cash return.

Again, simply enter an amount to "step" the down payment (let's say the down payment is $150,000 and we want to step it $2,500). The Down Payment Sensitivity report will display a list of down payment amounts ranging from $92,500 to $207,500 along with the appropriate outcome for each price.

3) Loan-to-Value Sensitivity Analysis

Loan to value sensitivity enables you to evaluate monthly loan payments for a range of loan amounts at various interest rates. In this case, you would step both the loan amount and interest rate.

This analysis is particularly helpful when trying to determine the lowest possible monthly payment. Simply enter a dollar amount to step the loan and a percentage to step the interest rate, and Viola! Your report is created and you have several hundred variations to examine.

ProAPOD® Real Estate Investment Software provides sensitivity analysis for all three methods illustrated above. All calculations are made automatically and in real time as you enter the property data. Printable reports are provided for each sensitivity analysis.

So You Know

ProAPOD® provides affordable real estate analysis software for agents and investors to conduct a sensitivity analysis. It's fast, easy, and concise. Presentations in minutes! Learn more at www.proapod.com.

Feel free to share this article.