Business/Finance: REAL ESTATE ACQUISITION PROGRAM (REAP)

Whenever Gene found a house, he used the Real Estate Acquisition
Program, a software program Dolf created and developed,
to see if the house was worth investigating further. REAP
is a powerful property analysis tool enabling users to analyze
the investment value of real estate.
After entering all the pertinent details of a property, including
the purchase price, rental income, vacancy rate, property
taxes, management fees, maintenance costs, homeowners association
fees, and mortgage details, REAP generates seven reports
(numeric as well as graphical) to provide an indication of
how the property is likely to perform. The reports include details
on the cash-on-cash returns (both before and after tax)
and the internal rate of return.
“While REAP can absorb all the numeric data on a property
such as purchase price and range, there are of course aspects
of a property REAP cannot accommodate, like the look and feel
of a place,” Dolf says.
However, most of the decision of whether you should buy a
piece of real estate should focus on the numbers. It’s the numbers
that count, not the feel of the place or whether the window
in the kitchen is positioned correctly relative to where the sun
rises in wintertime. It is purely a numbers game.
What does this property cost?
How much cash will we have to put in?
What are vacancy rates in this area?
What are the rental levels?
What are the management fees?
How much are we paying for it?
What should it appreciate to in the short term?
REAP does account for all the numeric data associated with
that property, but because it can’t take account of everything,
you can’t rely solely on REAP to make your decisions.
“A house that performs very well on REAP but is in the middle
of an industrial park with no view and oil on the ground
may be a worse deal than another property REAP doesn’t evaluate
highly on its own, but that is on top of a hill with a spectacular
360-degree view surrounded by BLM land,” Dolf says.
“However, once you look at a lot of properties through REAP,
you will get a good feel for what works and what doesn’t.”
Of course some properties may work well for one investor,
but not for another. For instance, if the investor has a lot of income,
like a neurosurgeon who makes $800,000 per year, they
can afford some negative cash flow in return for high capital
growth. Someone with a low-paying job with a lot of expenses
has to get investment property that generates high cash flow,
and the price they’ll pay is a slightly lower capital growth rate.
REAP doesn’t give you a yes or no decision. It is dependent on
the individual circumstances of the investor and other factors
you can’t always quantify.