||AptPrepTM calculates assumptions related to the investment property that you are considering and projects results and provides analyses to assist you in valuing your investment property opportunity.
The AptPrepTM Report is a customized report that presents easy-to-read and easy-to-understand results and analyses on the investment property you are considering, including:
|ROI, or Return on Investment, represents the rate at which your downpayment would grow each year over the life of your investment based on a set of assumptions. ROI is calculated by dividing the Total ROI by the number of years of your investment. The Total ROI is computed by dividing the sum of Cash Flows that the investment property would generate during the life of the investment by the initial investment (your downpayment). The ROI calculated by |
AptPrepTM takes in consideration the time value of money.
|Cash Flows Schedule:|
|The Cash Flow Schedule shows the Annual Cash flows as well as the monthly average cash flows that the property is expected to generate over the life of the investment. The Monthly Cash Flow represents the cash that the investment property is expected to generate each month on average after the rent has been received and expenses have been paid. The Monthly Cash Flow would increase if the rent charged to the tenant over the years increases at a faster pace than the expenses. The AptPrepTM Report illustrates this Monthly Cash Flow trend over the entire life of the investment.
The Rent assumption is a critical driver in assessing investment properties. A sound investment would typically show positive monthly average cash flow over the life of the investment. If the monthly average cash flow line shows any negative amounts, then out-of-pocket money will be necessary to supplement this cash shortage to keep your investment going. A negative cash flow might be offset by income tax benefits generated from the Interest Expenses, depending on the investor's specific income tax profile; however, AptPrepTM is not intended to produce tax-related analyses. This section of the report AptPrepTM illustrates whether additional cash injection might be required on a monthly basis in order to assist investors to further plan their cash inflows and outflows and to avoid any undesirable liquidity crunch implications.|
|The Investment Schedule shows Net Cash flows generated by the investment property over the life of the investment, including cash flows generated during the exit year, which is the last year of the investment (the year in which the property is sold back to the market). Net Cash flows are used to calculate your Return on Investment (ROI). The Investment Schedule also illustrates the Capital Gain Schedule, which presents how much your property is expected to appreciate each year.|
|Equity to Debt Ratio:|
|The Equity to Debt Ratio demonstrates the change in equity and debt balances over the life of the investment. Ideally, you should see the equity balance increasing and the debt balance decreasing over time without the investor’s need to inject additional cash. If so, you potentially created a self-sustaining asset that it is growing on its own over time (at a given ROI), requiring you only to manage it.|
|Mortgage Service Cover Ratio:|
|The Mortgage Service Cover Ratio (MSCR) allows you to assess how well the investment will be able to repay its debt service (mortgage principal and interests). A key concern when buying an investment property is to repay the mortgage and to avoid a default that will lead to the loss of the property and consequently a loss of the equity. It is critical that the ratio is always well above 1.00x otherwise you would probably incur a negative cash flow and an undesired default on the mortgage. Although not a requirement, a best-practice is to create a mortgage service reserve account (MSRA) at the beginning of the investment. A MSRA is a low risk account, for instance a savings bank account, which holds sufficient cash to cover the equivalent of three to six months of mortgage payments. It is not unusual that this money is never utilized during the investment, but it provides a cash reserve to offset any market volatility or unexpected expenses and potentially avoid a default on the mortgage.|
|Sensitivities table will illustrate how the ROI and the monthly cash flow will change if key assumptions change. Key assumptions tested include: the annual rent increase (%), annual property appreciation increase (%), down payment, mortgage interest rate, and rent levels($). The sensitivity tables will also show what rent levels and what asset growth rate are necessary to meet your targeted ROI.|
|Amortization Payment Schedule for the mortgage:|
|The AptPrepTM Report will present your customized payment schedule for the life of your investment, which includes annual principal and interest payments and the balance on your mortgage at the end of every year.|
|Charts and Graphs:|
|In the AptPrepTM Report you will find charts and graphs to help you visualize your results and analyses.|
|In the AptPrepTM Report you will find a glossary with helpful definitions that will help you navigate the report easily and to understand the information provided.|