The APOD: A Must-Have Report When Evaluating Rental Property Performance
The APOD, or Annual Property Operating Data, is one the more popular reports real estate investors and brokers use when evaluating the potential profitability of rental income properties because of its ability to quickly provide investors with the financial data they need to make an informed initial investment decision.
In this article we will discuss the APOD, including it's benefits, shortcomings, and structure. We also will include a screenshot for you to examine.
The APOD is a comprehensive one-page report of a rental property’s financial performance in the first year.
Think of it as a "snapshot" of how the property is expected to perform during the first twelve months of ownership; a "mini" income-and-expense statement (if you will) because a well-constructed APOD includes projected annual income, operating expenses, and cash flow before taxes.
Oh, and in case you're wondering, the word "APOD" is simply an acronym for Annual Property Operating Data (i.e., A-P-O-D).
- It's concise (one page)
- It's easy-to-read and understand
- It provides investors with enough information they need to make informed investment decisions such as income and expense breakdowns, occupancy rates, and projected returns on investment.
- It's limited to evaluating only the first year of a rental property's performance
- It ignores tax ramifications and the time value of money
There are five essential sections that comprise the annual property operating data report:
- 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 due 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.
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.
The amount of income remaining to service the debt once all the operating expenses are paid by the rental income collected.
The annual sum total of all mortgage payments.
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.
Did You Notice?
In addition to the pertinent financial data included in the APOD report, ProAPOD creates an APOD that also includes a number of other helpful information about the income property such as:
- Name and address of the property
- Number of units
- Square footage
- Down payment
- Loan information
- Cap Rate
- Gross Rent Multiplier
- Price per unit
- Price per square foot
- Cash-on-Cash Rate of Return
- Name rider
Rule of Thumb
When populated with accurate and realistic numbers, the APOD report can be a useful tool for real estate investors, as it provides a one-page overview of a rental property's financial performance in the first year.
However, it is important to keep in mind that the report is limited in that it only looks at one year of performance and does not take into account tax considerations or the time value of money.
Plus, to make the most informed decision, it is recommended to use the APOD in conjunction with other forms of analysis such as market research and property inspections.
So You Know
The APOD is automatically created, posted in the appropriate reports, and ready to print when you are in each of our software solutions: