The document outlines the key features that should be included in a tool for evaluating residential real estate investments. These include assumptions about debt, income, expenses, improvements, and calculations of equity, net operating income, value, and returns. The tool would allow investors to manipulate assumptions to determine if various investment scenarios could succeed. It also stresses the need for instructions and coaching to help users effectively analyze options.

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A practical tool evaluating residential real estate investing will must include a number of features.
The tool should include:
Debt assumptions including term, amortization, rate, loan amount, points, fees, report costs, legal
costs, title costs, etc.
Rental income costs,
Vacancy assumptions,
Other income assumptions,
Expense assumptions,
Expected rent increases per year,
Expected expense increases per year,
Assumed capitalization rate,
Improvement costs per unit,
Improvement costs per building,
Grounds and common area improvement costs,
Operating reserve requirement
From this, the tool should calculate:
Equity requirements,
Loan to Value,
Net Operating Income (NOI),
Value,
Equity Pay down on debt,
Internal rate of return,
Cash on cash return
Based on these results the investor can begin determining under what reasonable conditions an
investment will succeed or fail. The investor can manipulate assumptions varying equity, varying
improvement investment, varying debt rate, and so on to look at a wide range of ways to
determine if a project will make sense for them.
A tool like this obviously can't provide a complete analysis. However, the investor will be in a

2. position to consider options and possibilities and in many cases can write off projects because
they cannot provide potential necessary to consider a project.
With this in mind, the structure such a tool should offer from my perspective is the following:
The tool should prevent user entry in the calculating field to "idiot proof the result",
The tool has to be accompanied with a detailed set of instructions to understand how and what to
fill in to generate a result.
The tool requires some understanding of basic assumptions or the results are not actually likely to
be that informative.
The tool likely requires "coaching" support to get users comfortable and allow them to more
effectively analyze options.
With these items in place and with some practice the average person could perform a quick
analysis of different assumptions on a give property within a few minutes - 10 or less. And, after a
time could potentially review properties in almost no time at all. This will substantially improve the
investors ability to sort the wheat from the chaff.
Mr. Ratcliff is a US Naval Academy graduate and past class president, former Marine Officer,
residential / multifamily investor and and founder of the International Residential Real Estate
Investors Association - http://www.irreia.org. Join now - FREE tools, white papers, MORE
http://www.irreia.org/signup.
Article Source:
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