Why Your Real Estate Analysis Should Include an APOD

jim kobzeff

by James Kobzeff
May 3, 2019

The APOD is arguably one of the most popular real estate analysis reports typically used by investors, agents, brokers, and others engaged in real estate investing when trying to evaluate the potential profitability of rental income properties.

At least this was my experience over the thirty years that I serviced rental income properties as a realtor.

Overview

The word, "APOD", can be misleading, and is generally mispronounced by everyone who encounters the word for the first time.

Okay, but the word itself is really just an acronym for Annual Property Operating Data (i.e., A-P-O-D), and is a report that concerns a rental income property's annual financial performance for the first year.

The APOD Popularity

Real estate analysts like the APOD primarily because it gives a one-page "snapshot" of the property's financial performance over the course of the first year. Many, in fact, regard the data as a mini income-and-expense-statement because it includes the projected annual income, operating expenses and cash flow.

Personally, I like the APOD.

During my tenure as a realtor, it was the one report presented to real estate investors I was meeting to discuss a property for the first time, and in most cases it proved to provide enough data for the investor to decide whether or not there was enough profitability to pursue the investment further.

So it "cut to the chase" and saved us both valuable time.

The APOD Structure

There are five sections of the investment's annual property operating data that essentially comprise an APOD. Rental income, operating expenses, net operating income, debt service, and cash flow. It is structured as follows:

1. Rental Income

  • Gross Scheduled Income (GSI) - The sum of all annual rents as if the units were 100% occupied. Apply any rent you wish (perhaps a market rent) to units that are vacant. The idea is to show the potential when all units are rented and all rent collected.
  • Vacancy and Credit Loss - The potential rental income lost do to unoccupied units or nonpayment of rent by the tenants. I recommend nothing less than 5%.
  • Effective Gross Income (EGI) - This is gross scheduled income reduced by vacancy allowance and represents the amount of rental income you realistically expect the asset to generate.
  • Other Income - The amount of income (if any) you expect can be collected from other sources such as coin-operated washers and dryers, storage rooms, garages and so on.
  • Gross Operating Income (GOI) - The actual amount of income available for you to start paying the bills.

2. Operating Expenses

  • The expenses required to keep the rental property in service such as property taxes, property insurance, utilities, trash, repairs and maintenance, property management and so on.

3. Net Operating Income

  • The amount of income remaining to service the debt once all the operating expenses are paid by the rental income collected.

4. Debt Service

  • The annual sum total of all mortgage payments.

4. Cash Flow

  • The cash available after all cash inflows are reduced by all cash outflows. In this case it is cash flow before taxes (CFBT) which means it is money still subject to the owner's income tax liability.

Or,

  • Gross Scheduled Income
  • less Vacancy and Credit Loss
  • equals Effective Gross Income
  • plus Other Income
  • equals Gross Operating Income
  • less Operating Expenses
  • equals Net Operating Income
  • less Debt Service
  • equals Cash Flow

Screenshot:

apod
Fig.1 Agent 6 & Executive 10 - APOD

Rule of Thumb

The APOD is not perfect because it only evaluates the first year of a rental property's annual property operating data and does not include consideration for tax shelter or time value of money.

Nonetheless, when populated with accurate and realistic numbers it will provide real estate investors with a concise and easy-to-read report that will benefit initial real estate investment decisions.

So You Know

The APOD is included in these ProAPOD solutions:

Agent 6
Automatically created and ready to print when you are.
Executive 10
Automatically created and ready to print when you are.
james kobzeff author

James Kobzeff is a former realtor with over thirty years of investment property experience and is the owner/developer of ProAPOD Real Estate Software.