Real Estate Investment Software

In any real estate investment transaction, the property owner (seller) is taxed on the gains from the sale. However, through a Section 1031 Exchange, the tax on the gain is deferred.

Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment. A tax-deferred exchange is a way for a property owner to trade properties for one or more replacement properties of “like-kind”. 1031 exchanges will defer federal and state taxes because it would be unfair to force the taxpayer to pay tax on a “paper” gain.

The like-kind 1031 exchange is tax-deferred, not tax-free. When the exchanged property is finally sold (not as part of another exchange), the original deferred gain, plus any additional gains since the purchase of the exchanged property, will be taxed.

Learning how to depreciate rental property is a vital skill to have for any landlord or real estate investor. There are two depreciation methods available–the straight line method, and the double declining balance method–for an investor to choose between. Since every property paired with a real estate investor is financially unique, the investor should run the calculation both ways to find out which way works best for their situation. The current insured replacement cost will help an investor obtain the data values needed to run the calculation. The land value, structure value, and fixture values are all used when calculating depreciation–regardless of the depreciation method being used. The real estate investor would also need to get the state and federal tax rates as well. Once this information has been obtained, the calculations can be performed.

Depreciation formula for the straight line method:
Current Value – Salvage Value / Years left of productive life

Depreciation formula for the double declining balance method:
(Current Value - Salvage Value) * (2 * 100% / Years left of productive life)

Learning how to calculate the NPV–Net Present Value–is one of many valuable skills to have if you want to invest in real estate. The NPV helps a real estate investor analyze a properties profitability. Although, many investors consider the NPV to be unreliable. The NPV relies on projected future cash inflows which is impossible to accurately forecast. Even when an investor realizes the NPV’ reliability, it is still calculated because it provides a guess estimate. It would be beneficial to be as realistic as possible when inputting future cash flow values. A good way to do this would be by guessing a high and low realistic amounts, and using the number between the two. However, a good way to ensure your being realistic would be by keeping the high and low amounts as close together as possible.

I suggest using the built in formula in Excel, or other popular spreadsheet programs to calculate the NPV. Here is the formula used for calculating the NPV: =NPV(discount rate, cash flow values).

Learning how to calculate the ROI–Return On Investment–is another important skill to have if you want to invest in real estate. I suggest using the built in formula in Excel, or other popular spreadsheet programs. But if you want to know how to do it yourself, read on.