Q: What is the difference between the physical copy of REAP and the electronic copy?

A: There is no difference between the physical and electronic copy of REAP except for the cost. The electronic copy is US$445.00 vs. US$495.00 for the physical copy. The electronic copy is sent via an email, which contains a link that can be downloaded and the physical copy is an actual CD.

The electronic REAP is sent by email and includes an electronic copy of the user's manual. The physical REAP CD contains the manual. In both cases, live support is available Monday through Friday 8am to 5pm through our REAP Software Support at 602-331- 8882 or reap@dolfderoos.com. The electronic REAP is suggested to our International customers to save them on cost and time.

Q: I have requested electronic delivery of your software program, but have not received anything. Should I expect an email, or other form of contact? How do I now download the software?

A: As soon as the order is processed, you will receive the REAP software via a link sent to you in an email. Follow the steps provided to download and begin using the software.

Q: How do I buy additional licenses for my REAP software?

A: When you purchase the REAP software it comes with two licenses, which allows you to install it on two of your computers. Any additional licenses of REAP (after your original two) can be purchased for US $222.50 (half the price of an electronic REAP). To purchase additional licenses, send an e-mail to enquiry@dolfderoos.com; or you may call (602) 331-8882 from 8:00 A.M. to 5:00 P.M.

Q: Will REAP software work on MAC computers or just IBM compatibles?

A: Yes, REAP will run on MAC computers however, it will require a PC emulator which can be found at your local computer stores.

Q: I would like to know how to keep the rental rates from increasing by the inflation rate from year to year. The reason for this is because if I have a good tenant and don't want to raise the rates. The program does not give me a true representation of the income in this situation.

A: You can change the inflation rate to zero. However, doing so will also keep all other expenses from increasing.

Q: Can I add extra annual property expenses?

A: You can add as many annual expenses (with labels of your choice). Select the Financial tab and locate the annual expenses box on the right-hand side. You can add or remove annual expenses by using the ‘+’ and ‘-’ buttons.

Q: How would I make backups of the REAP data? I will be putting in large amounts of data. I will like to make sure it is safe.

A: When you start REAP, select ‘backup’. A new window will appear that will allow you to backup your REAP database to any drive and directory you select. You may also name that backup copy at this point.

Q: If you do renovations in year 4 and pay cash for them, how do you enter this? It appears the program automatically put it in as a loan!

A: If you pay cash for the renovations as opposed to increasing borrowings to pay for renovations, you can enter the same number of dollars as Additional Renovations. This way, the renovations will be capitalized and depreciated. Alternatively, if the expense is for repairs and maintenance, you may enter that information into the Special Expense area. In this case the cost of the renovations will be taken out of the Cash Flow, and deducted against income for taxation purposes.

Q: Can you please confirm that REAP calculates NOI and uses Cap rate to find property value?

A: NOI stands for Net Operating Income, which is gross income less all expenses. This is also called the pre-tax income. What REAP does is work out the pre-tax income, the pre-tax cash-on-cash return, the after-tax income, and the after-tax cash-on-cash return. Using the cap rate to find the property value is the preferred way to look at real estate. However, most people want to look at the asking price (or what they are willing to offer) and the income to work out what the returns are. It would be tricky to offer both.

Q: How do I adjust an expense monthly? I have a property that is managed at 9% and when I get another one the rate will then go to 7%. If this happens mid-year, is there a way to record this event?

A: To adjust the expense, compute it using a calculator, and add it as a dollar figure rather than a percentage of the annual rent. For instance, an annual rent of $10,000 at 9% fee for 4 months, followed by a total rent of $20,000 at 7% for the remaining 8 months, would be 10k x 9% x 4/12 PLUS 20k x 7% x 8/12. This would equal the total amount of management fees that will have been paid.

Q: I plan to use a line of credit to make the down payment on a new property. Do I enter the amount I borrow into the "Cash Investment" field located in the "Investor Information" section of the Financial tab?

A: No. The "Cash Investment" field is for the initial cash outlay, (down payment), used to acquire the investment property. This money comes from money you already have - not borrowed money. This is an out-of-pocket cost.

Q: In my country, when the income or expense is higher than the rental income, there isn't any tax credit given. How can I get REAP to ignore the tax credit in order to have an accurate investment analysis on after-tax cash flow, after-tax cash on cash, and IRR?

A: In the Financial section, there is a field for the investor's Taxable Income. If this field is set to zero, there can be no tax credit given, as there is no income, and therefore no income tax that can be reduced. Therefore, all you need to do is set the income to zero, and you should see that the tax credit is zero.

Q: I am unable to get the Total cost in the Loans section to show any figures. Can you tell me what I need to do?

A: You can enter various costs associated with the loan. There are three columns in this section: "Name", "Loan %" and "Fixed Cost". To specify an amount, click in the "Fixed Cost" or “Loan %" field and enter the cost or the percentage rate. Once you have entered the figure, click on the 'ü' button to post the transaction. The cost just entered will be immediately reflected in the gray- shaded Total loan cost box below the table.

Q: What is a letting fee?

A: One function of a letting agency is finding tenants for available rental properties. A letting fee is a fee an agent charges a lessor for finding a tenant for their property.

Q: I am wondering if the REAP software will work to analyze potential property investments in my country. Does the software only work for certain countries?

A: The REAP software works in any country. It comes with four countries set up by default: USA, Australia, Canada and New Zealand. The user has the ability to set up any country desired. The location does not necessarily need to be a country. Any state, city, or region may be entered. When the user creates a new location, he/she specifies things such as the inflation rate, the capital growth rate, applicable tax brackets, etc. The items specified are unique to the area in which the property is located. For example, one country might have high inflation compared to others, or one state might have a lower capital growth rate than its neighboring states. It does not matter what country you reside in or where the properties are located you wish to analyze, REAP will work regardless.

Q: I am not sure what the inflation rate and capital growth rate are for the area where the property is located. How can I determine what percentage rate to enter for these two parameters?

A: You may find information about the inflation rate by contacting your city/state government offices. They keep statistics for the regions they govern. You may also be able to locate this information on the Internet or by referring to a librarian. As for the capital growth rate, a real estate brokerage or realtor should be able to help you obtain an accurate figure. Remember the inflation rate is not necessarily the national rate, but specific to the particular region in which the property is located. For example, a city might have a different inflation rate than the state it is in, and that state's inflation rate might differ from the inflation rate of the nation. Capital growth rates also vary from country to country, state to state, etc.

Q: I would like some clarification regarding the REAP index. Which number is good and which is bad? There doesn't seem to be a finite range like 1 to 10.

A: The REAP Index report presents ratings on three aspects of the investment property. The first rating reflects the extent to which the property is bought below its market value. The greater the discount to market value, the higher this rating will be. The second number reflects the income generated by the property. It uses a combination of pre-tax income and after-tax income, relative to the actual cash invested, and relative to a fixed 10% deposit. The higher the cash flow, the higher this rating will be. The third aspect reported is the growth rate. It uses a combination of the actual growth specified for the property and the built-up equity for the property per dollar invested. In summary, the REAP Index is a mathematical combination of the three ratings, to give a dimensionless indication of how a property may rank as an investment.

Basically the higher the REAP Index, the better the deal. There is no numeric scale, which identifies specific scores as excellent, good, average, poor, etc. The index was intended to enable each individual investor to develop their own scale for use when analyzing future investments. Therefore, a "good" score for one investor may not be a "good" score for another. The index gives investors an indication of how an investment is likely to perform if purchased.

Q: I would like to generate an "Investment Analysis" using different scenarios of "Cash Investment." I want to see the impact of financing various amounts of the initial investment. I would include interest on this financing in the "Expenses" section. I need the "Loan Amount" to remain constant in these scenarios, but it changes relative to "Cash Investment" and other input variables. Is there any way to manually change the "Loan Amount," or do you have any other suggestions?

A: There is no way of separately entering the cash down payment as a loan. You are really borrowing the entire purchase price. The best way to see the results would be to work it out on a calculator. If you have, for example, a first mortgage of $100,000 at 6%, and you are borrowing the down payment of $20,000 at 10%, then overall you have a loan of $120,000 at an average of 6.67% ($6,000 interest plus $2,000 interest divided by $100,000 plus $20,000). Therefore, you should enter zero as the down payment (or whatever amount you are putting in), then input 6.67% as the mortgage interest rate.

Q: I am mortgaging a property with multiple loans. When I look at the Investment Analysis Report, it seems to show only one loan?

A: When you look at the Investment Analysis Report, the number you see is the combination of ALL the loans you have entered. Specifically, the row "Loan Amount" is a combination of all the loan data you have entered, not just the data from one of the loans entered. Also, the interest rate shown is the highest of all the interest rates you have entered for the different loans. To view specific information on multiple loans for one property, refer to the Loan Analysis Report.

Q: I am hoping for clarification in relation to the investment analysis report in REAP. How does REAP calculate the “tax credit”? I have been unable to come up with an answer. I would really appreciate if someone could explain how this is calculated.

A: The tax credit is simply the amount of money you get back from the government if you are running the investment property at a loss, (even if it is just a paper loss because of depreciation). For example, assume the rental income is $10,000, and all actual expenses total $8,000. You would be making a pre-tax profit of $2,000, which would be taxable. However, if you had depreciation of say $5,000, then on paper you would be running at a loss of $3,000, ($10,000 income less $8,000 actual expenses less $5,000 depreciation). In this case, the tax man would see you as having a loss of $3,000 for the year, even though you pulled out $2,000 cash pre-tax.

If you are paying tax at a marginal rate, for example, 33%, then this pre-tax loss of $3,000 could be deducted against other taxable income and save you $1,000, (33% of $3,000). Since you would pay $1,000 less tax than you otherwise would have, you effectively have a tax credit from the government for the $1,000. Your after-tax income would be $3,000, (the original $2,000 pre-tax income PLUS the $1,000 tax credit).

Come to think of it, I don't know of any other business where you can make a pre- tax profit, but have the tax man agree that you are running at a loss and have him give you more money!

Q: Going through the investment analysis report, we find it very challenging to come up with the same "total deductions." Is there something we are missing here? Can you advise on how this total is calculated?

A: Total deductions include mortgage interest, running expenses, depreciation on the chattels (personal property items), and depreciation on the building itself.

Q: Whenever I run the "investment analysis" on a property, the "tax credit" line always shows a negative, therefore decreasing my "after-tax cashflow" and "after tax cash on cash" return. Can you explain this? My "taxable income" is usually at $225,000 US and my "minimum rate" (tax) is set at 36%. All of my property calculations show that the purchase works against my net? Is this because most of my projected purchases are making an "after depreciation" profit?

A: If your tax credit is negative, that simply means that you are paying tax. That is GOOD! It means that you are making a profit. You may not like paying tax, but making a profit is better than having a loss! In your analysis, if you progressively decrease the rental income, you will reach a point at which the tax credit, (or tax to pay), is zero, after which the tax credit will go positive, (you are getting a tax rebate). You are simply analyzing a property that has good, strong, cash flows.

Q: When I enter an amount for a renovations expense in the "Renovations" column this amount is added to the loan balance on the Investment Analysis report. This renders the entire report inaccurate. How can I input this figure in order to obtain an accurate analysis?

A: REAP was programmed to add the costs of renovations to the loan balance (if the cost is entered in the Renovations column). This does not make the Investment Analysis report inaccurate. Within REAP, any renovations made to a property (and entered in the Renovations column) are treated as capital improvements and are therefore added to the property's value. These expenses are thus capitalized and depreciated.

Alternatively, if you plan to renovate the property but you don't want the renovation cost to be added to the loan balance, you should enter the expense amount in the Expenses column under the Renovations & Special Expenses section. When expenses are entered in this column, the cost is not added to the loan balance, but deducted from the cash flow of the property. Consequently the property's value will not increase by the amount of the renovations expense. The renovation expenses are tax deductible when using this alternate way of recording the expenses.

Q: What is “Internal Rate of Return”? Can you tell me exactly what it is and how to calculate it? I have tried to reproduce the calculations but get a different answer.

A: The IRR is not an easy concept to define. Accountants have a complex definition along the lines of, "The IRR is the return you would get when you take the Net Present Value of all future cash flows, and then work out what equivalent return you would get if...", and it goes on and on and not many people can understand it.

When it comes to a real estate investment, the IRR can be thought of this way. Imagine you put $10,000 cash into a deal. In the first year you pull out $1,000, in the second year $2,000, the third $3k, the fourth $4k, and the fifth $5k. Furthermore, at the end of five years, the equity has gone up to $50,000. Then the IRR is the return that a BANK would have to offer you such that if you gave the bank $10,000, they could give you $1k in year one, $2k in year 2, and so on ending with $5k in year 5, and furthermore at the end of five years give you $50,000.

If you want to try to reproduce the calculations, the way it is calculated in REAP is not annually, but monthly, so that there are in fact 62 periods (start period, 5 x 12 months, and the ending period).

Q: The after tax "cash on cash" shows a negative 1.54% and "your income of - 4.25”. Is this a negative cash flow deal, even though the IRR is 107.70%? If the IRR is positive 107.7%, does this mean to get there we had to "put cash into the deal" to make it a positive outcome? This goes against your teachings of making all "deals" cashflow positive.

A: Ideally, deals should be cash flow positive. However, even if you are putting money into the deal, (a negative cash on cash return), if the capital growth is going up faster than you are putting cash in, then the IRR will still be positive.

Q: When I enter a "market value" and "purchase price" for a new property, the "total cost" comes up greater than the purchase price, (i.e a "purchase price" of $55,000 produces a "total cost" figure of $56,092.50. I don’t know what the additional figure of $1,092.50 relates to.

A: Make sure that the "location" setting is set to USA. It sounds as though it may be set to either Australia or New Zealand. If it is set to one of the other countries, this would explain the addition of "Stamp Duty" to the “Total Cost”.

Q: The input screen requires the investor to enter their taxable income. What if the investor has very little or no taxable income? Will this be of any importance to the outcome of the data?

A: If you are receiving positive cash flow from the property, the program needs to know what your income is to determine your tax rate (to figure out how much tax you must pay) which will affect your after tax cash flow. Someone on a higher income scale will have less money left over after tax than someone on a lower income scale. If you are receiving negative cash flow, then the program needs to know what your income is to figure out how much tax it will save you. The higher the income, the higher the rebate you will receive.

Q: Why does the IRR diminish rather than increase with time?

A: The property value increases over time, therefore, all tax deductions of mortgage interest are of an increasingly smaller proportion of the increasing property value. This is why refinancing after a number of years is such a good idea - it brings the IRR back up to a healthy figure.

Note in the default locations setup in REAP, the capital growth rate is higher than the inflation rate (which affects the growth in rent). All other things being equal, one would expect the long-term IRR to asymptotically (as the mathematicians say) approach the capital growth rate.

The reason why an internal rate of return tends to be high initially is because most people buy a property for something less than the market value. This means the equity created instantly at the time of purchase results in a very high first year IRR; but that same equity is spread over 2 years for the 2-year IRR.

Don't forget the IRR figures in REAP are not for individual years, but rather they represent the IRR from purchase time up to the end of, respectfully, years 1, 2, 3, 4 and 5. In other words, there is no such thing as a "year 5 IRR". Rather, the figure in the column headed year 5 represents the IRR by taking into account all cash flows from purchase (year 0) to the end of year 5. Considered in this light, it is natural for the IRR to fall as the term under consideration increases.

Q: Is there a way to "Save As" property information so you could compare the same property with different loan scenarios without having to re-enter all the information each time?

A: REAP has a “Copy Data” feature that allows for transferring information from previously defined properties. There is also a “Sensitivity Analysis” tool. The sensitivity analysis allows you to track changes made to input parameters, so you may see how the performance of your investment is affected. To see the results of changes to parameters (e.g. rent per month - or, different loan scenarios), make the change to the parameter and click on the ‘show’ button. The program allows you to repeat this process to compare how different changes affect your investment. Five indicators may be monitored using the sensitivity analysis: pre-tax cash flow, after-tax cash flow, pre-tax cash-on-cash return, after-tax cash-on-cash, and the internal rate of return. When the initial cash investment is low or nil, the internal rate of return may give an 'incalculable' result, as the IRR grows to infinity and causes overflows within the software.

Q: Is there a way to email the reports to someone who doesn't own REAP?

A: There is no direct email facility. However, you are able to create PDF format files and send the PDFs as attachments to an email.

Q: I noticed my REAP shows all figures in English Pounds rather than using a dollar sign. I cannot find a way to make it show a $ sign in front of the figures even though countries in the system are Australia, USA, NZ and Canada. Can you help?

A: As there is no way of changing the currency sign in REAP, it is most likely a function of your Windows setup. You may want to check the currency setting. To change the way your computer displays currency values:

1.     Open Regional and Language Options in Control Panel.
2.     On the Regional Options tab, under Standards and formats, select Customize.
3.     On the Currency tab, specify any changes you want to make. Among items you can change are the currency symbol, the formats used for positive or negative amounts, and the punctuation marks.

* Note: To open Regional and Language Options, click Start, point to Settings, then Control Panel, and then double-click Regional and Language Options.If you are switching currencies (for example, from a national currency to the euro), change the currency symbol, and then select OK or Apply. The other fields will change to reflect the new currency.

Q: The REAP screens appears distorted. The alignment is off. How can I correct this?

A: Most likely your screen setting needs to be adjusted. You can do so by following these steps:

1.     Go to your desktop, right click your mouse in a blank section of the screen (be careful that your mouse cursor is not over an icon)
2.     A list will appear. From the bottom of this list, select Properties
3.     When the "Display Properties" Window appears, select the tab labeled Settings
4.     Select the Advanced button located at the bottom of this window
5.     From this window, locate the DPI (Dots per inch) setting. The setting should read "Normal size" to allow the REAP program to display correctly. However, depending on your operating system, the selection may read "Smaller" rather than "Normal size." Included in this drop down menu is a small arrow pointing downwards. Click on this arrow and select either the "Normal size" or "Smaller" setting.
6.     After this change in setting, you will have to restart your computer. Once this is done, open the REAP Program and it should display properly.