How To Spot an APOD When You See One
| | Monday, September 19, 2005 @ 09:39 AM EDT
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Contributed by: James Kobzeff
James Kobzeff Properties
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In our profession, catch-phrases get tossed around like toasts at a wedding. And to know them is to love them. Not to know them, however, is more than bewildering, it’s intimidating.
The APOD is a classic example.
Residential agents don’t use an APOD. So they aren’t expected to know (or even care) what it means. But when a residential agent enters the world of multifamily property, the word pops up as surely as a mushroom in silt.
Therefore, it seems appropriate (if not merciful) to explain what an APOD is for those residential agents starting to work with multifamily property.
The APOD
The word APOD is simply an acronym for Annual Property Operating Data. And what it does is serve as the real estate equivalent of an annual income and expense statement.
You might even consider it a snapshot of a property’s annual income and expenses if it helps plant the idea. But note the emphasis on the word annual. An APOD annualizes its numbers, it doesn’t concern monthly numbers.
Though a well-constructed APOD is important for comprehension, in reality an APOD can be written on a napkin if the income and operating expense data are entered correctly. (It just won’t do much for your image).
How is an APOD constructed?
First, show the annual income derived from rents. Take the sum of all scheduled monthly rents (be sure to include rents for vacant units) and multiply by twelve to annualize it. Label it Gross Scheduled Income.
Next, enter an annual amount for vacancy and credit loss and deduct it from the gross scheduled income. Label the result Effective Gross Income.
Next, enter an annual amount for income generated from other sources associated with the property (i.e., laundry income) and add it to the effective gross income. Label the result Gross Operating Income.
Next, itemize the property’s annual operating expenses and total it.
This should include property taxes, property insurance, utilities, trash, repairs and maintenance, and other applicable expenses (i.e., property management, advertising, landscaping, etc.).
Next, deduct the sum of the operating expenses from the gross operating income and label the result Net Operating Income.
Next, calculate the annual amount paid for the mortgage and deduct it from the net operating income. Label the result Cash Flow.
Viola! You’ve just constructed an APOD.
Now, for good measure add a computation for cap rate, gross rent multiplier, and cash on cash return. And guess what. You’ve got an APOD that will make you proud. (Assuming, that is, it’s not on a napkin).
Note: James R. Kobzeff is a licensed Broker and apartment specialist in Salem, Oregon. James is also the developer of ProAPOD™ Multifamily Marketing & Analysis Software and ProAPOD™ TVM Calculator
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