Not All Income Analysis Software is Created Equal

There are several so called lease by lease programs available — usually at a very high price. You will also find cheaply priced programs out there that claim to serve all of your income analysis needs. And you will find software programs out there whose focus is on preparing narratives, but they throw in a quick and dirty discounted cash flow analysis or rudimentary cap rate builder into their package to cover all of the bases.

Neither Investment Analyst nor Commercial Complete fit into any of these categories. Before you decide which income analysis software is best for you, consider these things.

Don’t spend $4,000 for software that you may never use or $79.95 for software that cannot do the job

Lease by Lease Programs

Lease by lease programs are designed from an accounting perspective, not a valuation perspective. Only as a secondary function do these programs discount cash flows produced by the leases to get a leased fee value. Often they do not consider financing in the valuation. Or closing costs. Or selling expenses. The primary function of Investment Analyst has always been to answer the question — What is this property worth, based upon income? Performing a discounted cash flow analysis is one way. Analyst does this well. But seasoned professionals know that simply performing a DCF analysis is only part of the story, and it is often not the best indicator of income value.

Usually, a stabilized analysis serves one better. At the very least, it must be considered. Even if the property has leases, Market Income and Market Expenses are often the best indicators of value. Leases can be broken — and if they vary too much from market, there is a good chance that they will be. Investment Analyst uses a sophisticated derivative of the Mortgage Equity Technique to build a cap rate that is applied to the Stable Net Income in order to determine value. Analyst then proves the cap rate calculation with a Discounted Cash Flow analysis and a Net Present Value analysis, using the same assumptions.

Lease by lease programs ignore stable income and expenses. They do not use the Mortgage Equity Technique to verify the accuracy of DCF. The design of a typical lease by lease program is awkward and confusing. You cannot immediately see the effect that data entries have upon the Indicated Value. These programs were not designed for the appraisers, investors and others interested in the value of the property. They were designed for property managers.

Look at the reports generated by other income analysis software. Is the emphasis upon what the indicated value is and what factors influence that value? Or do these programs spew out reams of paper to no logical end? You probably will have a hard time finding the value on their reports. So will your clients.