The Annual Property Operating Data | Real Estate Investing's Popular APOD | Why Investors Use It

An APOD is one of the most popular reports in real estate investing although it might be one of the most perplexing when one hears it referred to for the first time. Most people conjure up a picture of a camera (i.e., apod sounds like tripod). Not so.

The word APOD is actually just an acronym for "Annual Property Operating Data".

Cons

An APOD ignores tax shelter consideration and therefore only shows the cash flow before tax (CFBT), not cash flow after tax (CFAT) or other data following the investor's tax liability.

Pros

Its use is as the real estate equivalent of an annual income and expense statement yet as more of a "snapshot" of a property's annual income and expenses. Its popularity lies in the fact that it can be used to give the real estate analyst a quick evaluation of income property performance for the first year of ownership.

Therefore, because it does reveal income, operating expenses, net operating income, debt service, and cash flow concisely, it does serve investors well as a good "first-glimpse" of the investment opportunity.

Of course, a well-constructed APOD with sound operating data is best for comprehension. Obviously, the clearer and more correct the annual property operating data, the easier and more prudent the investor's determination of rental property performance.

Here's a good procedure to follow when you construct an APOD, but remember to include annual (not monthly) dollar amounts.

1) Show the income derived from rents. This is known as Gross Scheduled Income (or GSI), and should represent the sum of all annual rents as if the units were 100% occupied. In other words, include an annual rent even for vacant units. In this case, you can use any rent you like (perhaps a market rent) just as long as it is realistic.

2) Show an amount for vacancy and credit loss and deduct it from the gross scheduled income to compute Effective Gross Income (or EGI).

3) Show the income generated from other sources (if any) such as laundry income and add it to EGI to compute Gross Operating Income (or GOI).

4) Show the operating expenses such as property taxes, property insurance, utilities, trash, repairs and maintenance, property management, advertising, landscaping, and so on. Do not include debt service. Compute and label the total Annual Operating Expenses.

4) Deduct Annual Operating Expenses from GOI to compute Net Operating Income (NOI). 6. Deduct the annual debt service (mortgage payment) from NOI to compute Cash Flow Before Taxes (CFBT).

For good measure, you might want to add a computation for cap rate, gross rent multiplier, and cash on cash return. This is not necessary, but it does create an APOD that will make you proud to present to customers and lenders. If you prefer not to re-invent the wheel and would simply like to start creating top-notch APOD's immediately, then check out the following software solutions.