Introduction

The purpose of this section is to serve as an explanation of the Real Estate Investment Analysis . In order to do this, we will look at an analysis of the fictitious Sample Apartments investment. The accompanying explanations discuss the meaning of the assumptions in the analysis and the methods used in computing the results.

There is no way that we can fully describe all of the ways in which this model may be used. That use depends on your imagination and the particular situation you are analyzing. We try to describe some of the methods for handling some common needs such as Capital Expenditures, Expense Reimbursements, and so on within these pages; but no manual can be both brief and comprehensive at the same time unless the process being described is trivial, and such is not the case here. Accordingly, if you have unique aspects associated with your investments which you believe cannot be properly reflected in the analysis as described, we stand ready to discuss how you might accomplish your needs and we urge you to call us to do so.

This Model Documentation is organized in two major sections:

The first section discusses the assumptions and their meaning. The purpose of this section is to serve as a complete reference whenever you are looking at an assumption value and want to know what it means. There are, of course, the two line help messages on the screen, as well as the extensive help file, but the explanations in this section go into full detail. For your convenience, the explanations are organized in the same order as the assumptions are presented on the screen. Most people are not concerned with this area initially, being primarily interested in the reports produced by the system (the second major section). We urge that you reverse this thinking!! The primary determinant of whether a software system can satisfy your needs is the inputs (or assumptions) that you are allowed to make. For instance, if the software does not request Investment Tax Credit assumptions, you are not going to be able to handle Historic Rehabilitations, no matter what the reports may look like. Likewise, you are not going to be able to determine whether you can assume an existing loan or handle negatively amortizing loans or project a refinancing by looking at the reports. Only the description of the assumptions can answer these questions, and the answers are vital to whether the software can handle your needs both now and over the long term.

The second section discusses the output reports and their interpretation. Again for your convenience, the explanations are organized in the same order as they are presented on screen.

There are two models in the Real Estate Investment Analysis : RUI and RUM. This Model Documentation is prepared with the RUI model, which uses Internal Rates of Return. The only differences between the RUI and RUM Models are that the RUM Model uses Modified Internal Rates of Return instead of IRR’s and the Assumption Set includes the Safe and Reinvestment Rates necessary to compute them. Otherwise, the two models are identical.

It is extremely important that you understand that the Depreciation, Loan, Revenue, and Expense assumptions described represent multiple page types. This means that you may enter as many of these assumptions as you want for any property or analysis. This is a primary flexibility in planEASe. If you consider the implications, this means that you can analyze a property in virtually any detail you wish!!

All dates in your planEASe Assumption Sets must be entered as MM.YY where MM is the month, and YY is the year and they are separated by a decimal point. Thus 4.01 means the fourth month (April) of 2001.

As you will read, any Depreciation, Loan, Revenue or Expense may start on any date you wish. If you enter a date of 0.00 for any of these Assumption Pages, the starting date defaults to the Acquisition Date. Try to use this date default of 0.00 for these Start Dates when appropriate, rather than entering the actual date. If you do, whenever you change the Acquisition Date, all Multiple Page Type pages with 0.00 dates automatically adjust to start on the new Acquisition Date, and you avoid having to remember to change all the dates. This discipline also assures you of not making mistakes by failing to change dates.

Time is a continuum in planEASe. If you include cash flows that begin before the Acquisition Date, the system knows it, and only includes the cash flows which affect the time during the holding period. Likewise, if you include assumption pages that start after the holding period ends, the system senses that as well, and ignores the page. Why would you include such cash flows? One very good reason... if you vary the Holding Period in Sensitivity or Risk Analysis, the Revenues, Expenses, etc. to cover those holding periods had better be in the Assumption Set or you’re going to have some very strange results indeed!!

Each Multiple Page Type page contains a Page Title as the first assumption in the schedule. The Page Title is any thirty characters you want to use to remind yourself what you are using the page for. This Page Title is printed on many reports for that page. There is one very important significance to the Page Title text. If (and only if) you begin a Page Title with the ampersand character (&), the Detail Reports, APOD, Income and Annual Statements, and Rent Rolls that show projections based on that page’s assumptions are added to the projection for the previous assumption page. This is very useful when planning for a single item requires more than one assumption page. For instance, a variable rate loan requires one Loan Page for each change of payment and/or interest rate. Such a loan might require four or more Loan Pages to enter the assumptions. If you use a Page Title like Bank of America for the first page, and then use Page Titles like & Step 2, & Step 3, and & Step 4 for the remaining pages, the Detail Reports summarize the computed results for these four loan pages into one line (for the horizontal format) or one column (for the vertical format) denoted with the Page Title of the first Loan Page (Bank of America in this case). The Page Title text is also used in the Assumption Page List, so we don’t allow it to be blank because this would probably confuse you later.

The Lease Analysis function makes use of Page Titles beginning with two ampersands (&&). Since Lease Analysis’ Lease View shows Detail for each component (the & Page Titles) of a lease, the double ampersand is used to combine pages for the Lease Analysis grids and reports, which is useful for things like expense stops. See the tenant.ru and owner.ru Assumption Sets for examples of this usage.