BUT — You have to be smart about it.
And you won't believe the price of all this power —
Plus; as an IPS customer, you will be entitled to free support, discounts on other IPS products, special up-grade prices, access to exclusive information from studies and real world examples, special education offerings, and an opportunity for free software. And finally, you will have access to our considerable financial skills and experience at special rates, should the need occur.
You may ask — Why discount a high quality, multi-featured product that includes numerous other included programs? Simple; it's an old time tested strategy to establish a significant user base in a short period of time so that we can quickly establish economies of scale and acquire a large block of customer feedback in order to refine existing products and offer new products. So get in on the ground floor, lock-in up-grade prices and save $200 to boot. You won't be sorry.
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For more background see: Statement of Experience & Qualifications.
Here's a piece of their experience . . .
Take a look at a customer evaluation survey for the IPS Real Estate Investment Model Software:
→ Survey Results ←
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For many years, real estate investment has been a great investment. Like clockwork, each year real estate values would tick up by substantial amounts. It was so good that many investors became speculators who abandoned real estate analysis and replaced it with the greater fool syndrome where it doesn't matter what you pay for a property because an even greater fool will pay you even more for it. You could see this in steadily declining Capitalization Rates which indicate a trend where market values are perennially rising faster than Net Operating Income (a proxy for cash flows). This trend is not sustainable and indicates a bubble in the making. And in 2007, this fact came home to roost in a big way. Many investors got creamed.
What's the moral of this story. It's that investors need to pay attention to doing the analysis and forget about short-cuts, rules of thumb and over-reliance on appreciation. Conversely, they need to pay a lot more attention to CASH FlOW.
So what does this mean for real estate investors? Is real estate still a good investment? Absolutely. In fact, in times like these, the opportunities are even greater. But, you need to be smart about it and do your homework. What do I mean by that? Two things: 1) rigorous financial analysis, and 2) doing your Due Diligence.
When I say rigorous analysis, I'm not talking about a few simple rules of thumb. If you think that you can do just fine using a few simple rules of thumb like Gross Rents Multiplier or Cap. Rates, you're shortchanging yourself in a big way, and it's costing you money — big money.
These techniques are, at best, a quick and dirty means of screening large numbers of potential acquisitions, but they can be both inaccurate and misleading and should never be trusted when it gets down to analyzing the serious candidates (see article on Cap. Rates at left). Furthermore, they do not take into account leverage, taxes and other non-NOI cash flows which are critical to a project's viability. And finally, they tell you nothing about the future years — both profitability and risk (leverage and operating). All these things can adversely affect your net worth in a very serious way.
Rigorous analysis means analyzing the financial fundamentals of the property under a number of different conditions or scenarios. Because running through many scenarios involves hundreds of thousands of calculations, you simply can't accomplish this without a computer model— i.e. real estate investment analysis software.
A good real estate investment analysis software model obviates the shortcomings of relying on "gut feel" and simplistic measures of success. With it, you'll be able to look at "ALL" aspects of valuation analysis. You'll be able to work through the numbers to see the implications of alternative price considerations, leveraging levels, trade-offs between capital gain and operating cash flow, and much more — in minutes, if not seconds. And most important of all, you'll be able to test appreciation assumptions (via alternative valuation methods which don't depend on appreciation).
It may sound self-serving for a software vendor to say software tools are essential, but there's no getting around it. If you don't use this model, use another (however, no other real estate analysis software will give you anywhere near the depth and scope that the IPS Real Estate Invesment Model does). There are plenty of them on the market. Considering the capital that you're putting at risk and the minimal amount that analytical software costs, it's just plain silly not to avail yourself of this advantage. Especially now, in these challenging times.
Due diligence is the process of investigation by a potential buyer of a business' claimed and actual financial and operational performance. The idea behind Due Diligence is "Trust but verify!".
Without due diligence to ensure the quality of input data, you will confront the old "garbage-in, garbage-out" problem. A financial analysis can be no better than the quality of your assumptions and data input. I can't emphasize this step too much.
In the final analysis, your reward for taking these two steps (rigorous financial analysis and doing due diligence) will be to significantly enhance your profitability and net worth. But, perhaps more importantly, you'll know when to walk away from a deal thus avoiding financial disasters and thus a hit to your net worth. Either way, you win big. I discuss how I used due diligence in the Power Example.
Can't We Just Trust The Experts?
In the No Money Down article, I talk about the dangers of trusting the sellers, brokers, lawyers, accountants and financial planners. Specifically, I told the story of the time I read an ad by one of the largest and most respected real estate brokerage firms around. It listed a property for about $1,000,000. It also provided one year of projected data which indicated a whopping 50% IRR. Not trusting the figures, I input the raw data into the IPS Real Estate Investment Software Model and came up with a 20% return. A good return, but hardly 50%. When I brought the anomaly to their attention I was rebuffed with an air of arrogance that suggested "we're the experts, you obviously made a mistake." After a good deal of persistence, they eventually conceded the error — they added when they should have subtracted.
But that wasn't the only problem. I found that some of the base period data, upon which the projections were based, were aberrations that needed to be adjusted to reflect more realistic values. In addition, I found some of the other assumptions were considerably optimistic and needed to be toned down. They also ignored some obvious future capital expenditures that needed to be incorporated into the analysis. And finally, the owner personally performed much of the property management and maintenance work himself, none of which was reflected in the analysis as it should.
The end result of all this was a barely acceptable project at best; at worst, a white elephant. I don't believe anybody was trying to mislead me, but the poor trusting soul who takes the numbers at face value risks getting burned.
Mistakes, exaggerations, faulty data and insufficient rigor of analysis are always waiting for the unsuspecting and trusting investor. But even more insidious than errors and legal puffing are the outright purposeful deceptions. One need only think of Enron, WorldCom, Global Crossing, Adelphia, Tyco, et al, to know that some people and even established firms are downright crooks. Even professional accounting firms like Arthur Anderson could not be trusted to tell the truth about the billions in phony schemes. It cost employees and investors tremendous heartache.
The moral of all this is: trust what you read or what you're told only at your own peril. This isn't cynicism, it's self-preservation. So, for your own protection (and peace of mind), if someone stands to gain from the deal going through, be it the seller, the broker, the accountant or the lawyer, you must assume the worst.
Even if you retain some independent expertise, such as a financial expert, to help with the analysis, you still need to be proactive. Make sure he/she is competent. Then make sure he/she does his/her job. Don't just accept what they say. Hold their feet to the fire by asking tough questions. Show what you have done and get clear explanations for any discrepancies. Remember, he/she works for you.
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The IPS Real Estate Investment Software Model is the tool that provides the rigorous analysis that you need. And with a little due dilligence to ensure the quality and reasonableness of the input data and assumptions, you'll increase your profits and wealth while minimizing risks and especially, avoiding those losers which at first might appear reasonable.
|The Bottom Line:||If you're serious about making money with real estate investment property, you really do need this software. It'll return your investment a thousand times over. I promise. Buy it now.|
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