Instructions for The Income Property Analyzer (Version 3.

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Documentation as of June 30, 2010 Disclaimer and Copyright
Robert H. Kim, herein called Developer of this Workbook, has endeavored to ensure that the information presented here is accurate and that the calculations are correct but cannot accept any responsibility for any consequential damages or faults, human errors that may arise from the use of this Workbook, Charts, and Software. In no direct or indirect event will the Developer be liable for special, incidental or consequential damages arising out of the use or inability to use the Workbook or Software or information presented within even if advised of the possibility of such damages. The Developer has no further obligation to provide maintenance, support, update, enhancements, or modifications even though the Developer will attempt to keep all registered purchasers and users of this application notified of major changes to this application. No part of this Workbook will be copied directly or indirectly on any storage or viewing media without written permission from the Developer. For any questions about this application, contact: Robert H. Kim E-mail: rkim777@yahoo.com Phone: 803-292-2227

Website: http://www.Property-Aid.com Be sure to distinguish between cash required at closing (closing costs only) and total cash required which includes repair costs, holding costs, and other out-of-pocket expenses. All of the major steps on the Income Property Analyzer spreadsheet program contain comments to help you along the way. If you need help, just place the cursor over the appropriate spreadsheet cell with a little red triangle in the corner and read the comment that appears. It should be noted that all input fields are in YELLOW. All fields that help you determine if a deal might be good enough to syndicate are in LIGHT BLUE. Tip: For fast prescreening to see if it a property is a good enough deal that you might want to pursue, all necessary input and results are on the Input & Prescreen spreadsheet. The other spreadsheets are good for inclusions in reports to present to lenders and other investors. To prepare the workbook for new data entry from another property, <CTRL> + r activates a macro that clears existing input data. This macro can only be activated from the the Input & Prescreen spreadsheet, it will not work if you try to activate it from a different spreadsheet. Comments On Certain Sections Of The Workbook Under the Input & Prescreen spreadsheet tab, the section, Questions To Answer Before You Start Your Analysis, asks for Capitalization Rates for the following types of apartments:

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina

A. Above average apartments in above average condition. B. Average apartments in average condition. C. Below average apartments in below average condition. These numbers need to be a percentage. If you do not know the answers to these questions, a good way to determine Cap Rates for these property types is an apartment appraiser or from a knowledgeable commercial real estate broker or lender.

Annual Property Operating Data Section Start working your way down from top left to top right of the page and input the appropriate numbers into the input fields.

Loan Information The Existing Loan Information is for information purposes only. This information is not used in any calculations so it can be left blank. In contrast, the New Loan Information IS used in calculations when information for up to two mortgage loans is entered. The 2nd mortgage loan is often a seller carryback. If I is entered into the I = Interest Only column, the loan payment is calculated as interest only and the next column is when the balloon payment is due for the balance of the loan. If anything other than an I is input into the I = Interest Only column, the loan payment is calculated on an amortized basis and the next column becomes the number of years the loan is amortized over. The 1st Mortg and 2nd Mortg spreadsheet tabs show loan payment schedules and balance paydowns. The Input & Years 1-40 spreadsheet was modified to allow for variation in Vacancy Rate from year to year. If 0% or no input is given, the previous years Vacancy Rate is used. This is meant to account for major repositioning projects where vacancy will probably vary drastically during ownership of the project. Also, input for Actual Resale Prices each year was added to allow for calculations of actual rates of return instead of using just expected rates of return as based on projected property value.

Explanation Of Results
Closing Cash Required $: Amount required for closing. ARV Incl Reserves Cash-On-Cash Return: 1 -Year return based on Closing Cash as the only out-of-pocket cost and reserves in the cash flow. ARV/No Reserves Cash-On-Cash Return: 1 -Year return based on Closing Cash as the only out-of-pocket cost and reserves deducted from the cash flow. st Debt Cover Ratio (Net) For 1st Mortgage: Debt Coverage Ratio for 1 mortgage loan only with reserves deducted from the cash flow. Debt Coverage Ratio (Net, Overall): Debt Coverage Ratio for entire debt service with reserves deducted from cash flow.???
st st

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina

Cap Rate Incl Reserves: Cap Rate with reserves in the cash flow. Cap Rate Minus Reserves: Cap Rate with reserves deducted from the cash flow. Pre-Tax Cash Flow Incl Reserves: Cash flow, including reserves, before taxes. Pre-Tax Cash Flow No Reserves: Cash flow, minus reserves, before taxes. Total Cash Req'd $: Closing cash plus repair costs, holding costs, and other out-of-pocket costs. Overall Incl Reserves Cash-On-Cash Return: 1 -Year return based on total out-of-pocket costs and reserves included in the cash flow. Overall/No Reserves Cash-On-Cash Return: 1 -Year return based on total out-of-pockets costs with reserves deducted from the cash flow. Maximum Allowable Offer $ (MAO): Offer not to exceed to achieve our desired return. Initial Offer (% of MAO) $: A lower-than-MAO starting offer for negotiations. Net Operating Income (NOI): Overall NOI with no deduction of the reserves. NOI Minus Reserves: Overall NOI minus the reserves. Estimated Tax Rate: Used to approximate tax liability but this is VERY approximate! Annual Rent/Income Escalator: Estimate of income increases per year. Annual Expenses Escalator: Estimate of expense increases each year. Cost of Borrowed Funds (annual %): Cost to borrow funds to put into the deal. This is used to calculate Modified Internal Rate Of Return (MIRR). Reinvestment Rate (annual %): Rate of return earned when placing returns from this deal into another investment, typical a more conservative one to preserve principal. This is used to calculate MIRR.
st st

Returns On Investment & Financial Analysis Summaries The ROI Graphs-Overall and Input & Years 1-40 spreadsheet tabs provide graphical and tabular information, respectively, about Cash-On-Cash Returns, Returns On Equity, Internal Rates Of Return and Modified Internal Rates Of Return as well as how much can be expected by the Syndicator (you) and your Joint Venture (JV) Partners depending on division of ownership and amounts of funds invested. Also delineated are the amounts of equity and cash flow for Syndicator and JV Partners, depending on ownership division. The Internal Rates Of Return and Modified Internal Rates Of Return provide projections of what overall returns might expected upon sale of the income property after owning it for a number of years and takes into account cash flow throughout the years the property is owned as well as increases in equity from reduction in mortgage loan balance(s) and appreciation that corresponds to increases in Net Operating Income (NOI) during the years of ownership. The Summary-Overall and Summary-Jt Venture spreadsheet tabs are meant for printing out summaries of your financial analysis. It is best to either print it out separately to fit on one page, or to copy and paste it into a document. There is a Summary tab for the overall deal and a Summary tab showing division of returns earned by the Syndicator and by the JV Partners. Descriptions Of Updates Version 3.01: Changes Made From Previous Version Corrected the calculation of Break Even Rental Income in the Break Even Analysis. 3
Copyright 2010 by Robert H. Kim, Aiken, South Carolina

Version 3.00: Changes Made From Previous Version Added a Break Even Analysis. This analysis only takes into account RENTAL income, no nonrental income since non-rental income is not directly dependent on Occupancy. Also, RESERVES set aside are omitted. Accordingly, the pre-tax cash flow may not be $0 if the Break Even Vacancy is used in the workbook if there are non-rental sources of income. Only 1styear numbers are used in the calculations.

Version 2.12: Changes Made From Previous Version 1. Added capability to divide Cash and Equity ownership interests between Syndicator and Joint Venture (JV) Partners. This was added since JV partners might use funds they dont need to access anytime in the near future (e.g., self-directed IRA or other retirement funds) and can wait for their ROI but you may need cash now and cant necessarily wait for the potential back-end ROI to develop, or vice versa. 2. Minor modifications to the comments were made, especially in the Reserves section on the Input & Prescreen spreadsheet. 3. Minor modifications on IRR and MIRR were made to accommodate a few idiosyncrasies in the way Microsoft Excel calculates them.

Version 2.11: Changes Made From Previous Version Minor changes were made to the formatting. A column was widened to accommodate larger values and one decimal place was added to the precision of the returns on investment in the summaries and projections.

Version 2.10: Changes Made From Previous Version 1. Added a macro, <CTRL>+r, that clears out the input data in preparation for new input data from another property. 2. Modified a few comments to better reflect current Rules Of Thumb.

Version 2.09: Changes Made From Previous Version 1. Widened column on Input & Prescreen spreadsheet to accommodate larger numbers.

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina

2. Modified Income & Years 1-40 spreadsheet to correctly calculate Cash-On-Cash Returns when there is a 2nd mortgage loan. 3. Modified 1st year debt service cell formula on 2nd Mortg spreadsheet to correctly calculate Cash-On-Cash Returns when there is a 2nd mortgage loan. 4. Simplified the Summary spreadsheets by taking out some income and expense rows.

Version 2.08: Changes Made From Previous Version 1. Widened some columns on the Input & Prescreen spreadsheet to accommodate larger numbers.

Version 2.07: Changes Made From Previous Version 1. Added % of TPRI to the income section of the Input & Prescreen spreadsheet. 2. Permanently added Less: Delinquency as a deduction from TOTAL POSSIBLE RENTAL INCOME on the Input & Prescreen spreadsheet.

Version 2.06: Changes Made From Previous Version 1. Added more lines for deductions from TOTAL POSSIBLE RENTAL INCOME on the Input & Prescreen spreadsheet. 2. Modified comments in the Vacancy input on the Input & Prescreen spreadsheet.

Version 2.05: Changes Made From Previous Version 1. Widened the % of GOI column on the Input & Prescreen spreadsheet to allow for larger numbers without the # showing up. 2. Minor change in the % of GOI column formulas.

Version 2.04: Changes Made From Previous Version 1. Revised DCR (Debt Coverage Ratio) formula on the Input & Prescreen spreadsheet so it doesnt give an error message (divide by 0) when there is no debt but instead says, NO DEBT.

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina

2. Made slight adjustments to labels and updated some of the Rules of Thumb in the comments.

Version 2.03: Changes Made From Previous Version 1. Made corrections to Projected Property Value calculations on the Income & Years 1-40 spreadsheet by allowing this to be based on changes in negative Net Operating Income (NOI) to positive NOI at the breakeven Occupancy without the Projected Property Value incorrectly going more negative even as NOI became positive. 2. Made minor correction to calculation of amounts invested by Syndicator and JV Partner on the Input & Prescreen spreadsheet. 3. Made the editable (YELLOW) fields more user-friendly by allowing double clicking without erasing the field completely. 4. Used a darker shade of BLUE on the Income & Prescreen spreadsheet to highlight the Syndication Criteria Fields.

Version 2.02: Changes Made From Previous Version 1. Finally found the link to another non-existent workbook and deleted it! This was driving me crazy! Now there shouldnt be any message popping up about this non-existent workbook when this application is opened. 2. Added LIGHT BLUE shading to fields that help determine if the property qualifies for syndication in the Input & Prescreen spreadsheet. See the Comments in these fields for criteria (as of 2009) indicating a deal worthy of possible syndication. 3. Made minor corrections to Total $ Invested calculations on Input & Prescreen spreadsheet. 4. Changed labeling of the Simple Returns summary spreadsheet to reflect that they are Annualized Returns. 5. Added DCR (Debt Coverage Ratio) to Input & Years 1-40 spreadsheet. 6. Made minor changes to field names and comments/Rules Of Thumb for clarification and updating. 7. Added Debt Yield calculations and results.

Version 2.01: Changes Made From Previous Version 6

Copyright 2010 by Robert H. Kim, Aiken, South Carolina

1. Revisions were made to the division of Equity between Syndicator and Joint Venture (JV) Partner so that the agreed upon division of equity is based upon the amount of equity above what each partner has contributed in cash. This way, if there is no increase in equity, there is no division of the existing equity between Syndicator and JV Partner. 2. A Simple Return On Investment summary spreadsheet for joint venture partnerships was added to calculate total rates of return based on simple returns as opposed to the compound returns that are calculated by Internal Rate Of Return and Modified Internal Rate Of Return. 3. The after-sale rates of return (IRR, MIRR, and Simple Total Returns On Investment) now deduct sales expenses at the same percentage used for your original acquisition of the property. This results in lower rates of return from the previous version of this workbook. 4. Minor changes in labeling were made to better reflect field descriptions. 5. The ROI Graphs were further simplified to make it easier to view by removing some data plots.

Version 2.0: Changes Made From Previous Version 1. Input fields were added to allow for the addition of more detailed expenses in the Operating Expenses section in the Annual Property Operating Data (APOD). 2. Additional Rules Of Thumb were added to some of the comments. 3. There are now TWO spreadsheet tabs where data can be entered, not just ONE. Inputs can now also be entered on the Input & Years 1-40 spreadsheet, as well as the Input & Prescreen spreadsheet, to allow entry for varying vacancy rates from year to year and to be able to enter actual selling prices to allow for calculations of actual returns on investment as well as expected returns on investment that are based on projected selling prices. 4. Added Joint Venture (JV) calculations that allow you to specify how much of the deal you, as the Syndicator, will own and how much of the deal you want your JV Partners to own. Also, you can specify how much money you want to invest out-of-pocket and how much your JV Partners must bring to closing. You can also add in a Syndication Fee to collect at closing to help you recoup expenses or compensate you for putting the deal together. 5. Added calculations for determining separate Returns On Investment (ROI) for Syndicator and JV Partners.

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina

6. Added JV Summary spreadsheet that summarizes the divisions of deal ownership as well as the separate ROIs for the Syndicator and the JV Partners. 7. Added calculations for Modified Internal Rate Of Return (MIRR) to account for cost of invested funds as well as ROI for the investment returns. 8. The ROI Graphs spreadsheet has been revised to eliminate some of data and make the graphs more readable.

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Copyright 2010 by Robert H. Kim, Aiken, South Carolina