Real estate investing software offers a number of advantages to real estate investors, many of which we emphasize here at EquityScout.com.
Software, however, is not a panacea; it’s a tool to help you make good decisions but it won’t turn bad investors into good ones. In the past I’ve written about the information hierarchy:
DATA => INFORMATION => KNOWLEDGE
We hear lots about the “information age” and the value of information, but not everything that we term as “information” is equal. There’s lots of data out there: listings, rental rates, interest rate forecasts, data on fees and taxes. This stuff is only useful when we can process it into something that gives us insight – turn it into information. Mastering that process will generate the knowledge that investors need to make good decisions.
Real estate investment software is a tool to turn data into information. What you do with it after that is up to you. The following is a summary of what you can expect real estate investment software to do for you…and (more importantly) what you shouldn’t expect it to do for you:
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Software: What it can do
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Software: What it can’t do
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Organize your thought process: Inflation, interest rates, rental income, taxes…what else do I need to consider?
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Make decisions: I’ve run the numbers…so what do I do now?
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Point out key variables: Have you considered reserve for replacement in your calculation? Vacancies?
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Evaluate your assumptions: GIGO, which means “garbage in – garbage out”…are your assumptions realistic?
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Predict cashflow based on an expected case: You have a lot of variables to consider. A model helps show you how they all add up.
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Make you stick to a plan: No amount of forecasting and analysis will help an investor who doesn’t stay on top of vacancies and maintenance.
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Improve investing discipline in making decisions: Investing is part art and part science, but all good investors need to have a disciplined decision making process.
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Execute: Software can help give insights, but the investor has to act.
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Quantify a base case and sensitivities: Shows you what to expect if things go right…and what might happen if they don’t.
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Predict the future: Software can’t tell you what’s going to happen.
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Evaluate and compare investing opportunities: Should I buy the fourplex or invest in a few single family homes?How do the rates of return compare?
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Know when you’re in over your head: Sure, the rate of return on that rehab looks great…but can you handle it right now?
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In summary, Real estate investment software can be useful for:
Ivestors who want to quantify their decisions
- Investors who need a convenient way to save and compare opportunities
- Investors who want to add some rigor to their thought process
- Investors who want a checklist of variable to consider in the analysis
- Real estate professionals who want to present ideas to investors
- Investors who want to present ideas to sources of funding (hard money lenders, banks, etc.)
Real estate investment software is probably not suitable for
- Investors using advanced creative financing techniques or executing complicated deals
- Investors who are comfortable building their own cashflow/analysis models in spreadsheets.
