The APOD is an acronym for “Annual Property Operating Data” and is one of the most popular reports in real estate investing. Foremost, because it gives the real estate analyst a quick evaluation of property performance for the first year of ownership.
In daily life, the APOD essentially serves as the real estate equivalent of an annual income and expense statement, but more in the capacity of a “snapshot” of a property’s income and expenses.
1. Projects property performance for the first year of ownership only
2. Ignores tax shelter consideration
3. The bottom line is cash flow before tax (CFBT), not cash flow after tax (CFAT)
4. Reveals income, operating expenses, net operating income, debt service, and cash flow concisely and therefore serves investors well as a good “first-glimpse” of the investment opportunity
A well-constructed APOD is best for comprehension, obviously, and the clearer annual property operating data is presented the easier the determination of property performance. But the emphasis is on correct numbers, not on style, so pay particular attention to what data you include. Here’s the procedure.
1. Show the Gross Scheduled Income (GSI) This is the income derived from rents and should represent the annual sum of all rents as if the units were 100% occupied. Always show a rent for vacant units; you can use any rent you like (perhaps market rent) just as long as it is realistic.
2. Show an amount for vacancy and credit loss – Deduct this amount from GSI to compute the Effective Gross Income (or EGI).
3. Show the income generated from other sources (if any) – Include things such as laundry income, rents from storage units or garages (if any) and add the total to EGI to compute Gross Operating Income (GOI).
4. Show the individual operating expenses and total – Include expenses required to run the property such as property taxes, property insurance, utilities, trash, repairs and maintenance, property management, advertising, landscaping, and so on. Do not include debt service. Compute a total and label it Annual Operating Expenses.
5. Deduct Annual Operating Expenses from GOI – This computes the all-important Net Operating Income (NOI).
6. Deduct the annual debt service (mortgage payment) from NOI – This computes the investment property’s bottom line, cash flow, or more specifically Cash Flow Before Taxes (CFBT).
Okay, let’s consider the entire list from top to bottom so you can see a typical format used in an APOD:
Gross Scheduled Income (GSI)
- Vacancy Allowance
= Effective Gross Income (EGI)
+ Other Income
= Gross Operating Income (GOI)
- Operating Expenses
= Net Operating Income (NOI)
- Debt Service
= Cash Flow Before Tax (CFBT)
As stated earlier, an APOD is more about substance (accurate financial data is mandatory) than it is about style and panache. Nonetheless, annual property operating data that also includes computations for cap rate, gross rent multiplier, price per square foot, and cash-on-cash return are helpful. Yes, you can exclude the extra effort to include these additional computations, but it does create an APOD that will make you proud to present to customers and lenders so it’s recommended.