The APOD (or Annual Property Operating Data) is one of the more popular reports real estate investors rely upon when doing a real estate analysis on potential investment properties.
In fact, it would be surprising to learn that anyone who has been engaging in real estate investing for any length of time hasn’t handled the report at one time or another. It really is used that often by real estate brokers, agents, and other analysts that often.
Okay, let’s consider why real estate investors like it.
1. It is a single-page report. This makes it easy to handle, print, and distribute.
2. It includes an ample amount of financial data such as the sale price and the property’s annual operating data like rental income, operating expenses, debt service, and cash flow before taxes. In some cases, it may even include rates of return like capitalization rate and cash on cash return as well as other measures such as price per square foot and/or price per unit.
3. It provides investors with a good “first-glimpse” of a rental investment property’s financial performance during the first year of ownership. This certainly would not be enough to make a prudent investment decision, but it is a quick and easy way for potential buyers to at least make some preliminary decisions about the investment opportunity without having to spend the time and effort it could take digging through a full rental property analysis.
4. It is easy to read and understand. Because the APOD only focuses on an investment property’s cash inflow and cash outflow for one year, it only contains a couple of columns of data that typically do not clutter the report. So it can be previewed rather easily and the financial results comprehended rather quickly.
Fair enough. So what are an APOD’s shortcomings?
Foremost, the report’s data is limited to the first twelve months of ownership and therefore can’t be used to make longer-range projections like you would normally find in a proforma income statement.
Secondly, it does not take into account any of the elements of tax shelter and therefore does not provide data associated with the owner’s income tax liability such as cash flow after taxes or in the event of a future sale, the sales proceeds after taxes.
Thirdly, it does not consider time value of money so there is nothing in the report that shows rates of returns like Net Present Value or Internal Rate of Return.
The Bottom Line
The APOD is not perfect, and as with any other single report created to show a rental income property’s cash flow and profitability numbers, investors should not rely on it solely to make their investment decision. Nonetheless, given the benefits it offers, it should not ever be ignored by any real estate practitioner or analyst.