One of the first things you should learn as an investor is how to calculate “cap rate” (capitalization rate). This is the rate of return from rent for the first year of ownership, if you paid all cash, assuming zero appreciation.
An APOD is a detailed analysis that also takes into consideration appreciation and tax benefits over multiple years. It is a document that members of the CCIM Institute can access and fill in to provide a detailed financial analysis of a rental property. CCIM stands for Certified Commercial Investment Member. A few real estate agents earn the CCIM designation after taking courses, showing a certain number or amount of sales, and paying annual dues.
An example of a five year APOD can be found here: http://www.garytharp.com/forms/
As with all information provided to induce you to buy, it should be taken with a grain of salt. Make sure that rents shown on the analysis match current actual rents and are not “pro forma” rents. Also make sure that predicted appreciation matches your expectations of appreciation. If you download and play with an APOD spreadsheet, you’ll see that adjusting the predicted appreciation rate will have a large impact on predictions. Nobody knows for sure what future appreciation will be, so these numbers are mostly speculation.
Make sure you use an appreciation rate that seems reasonable to you. If someone tells you that since last year’s appreciation rate was x percent, it is reasonable to assume that appreciation will be x percent next year, ask them if that was also true in 2007. It is more reasonable to use a predicted inflation rate or average appreciation rate. Use zero for one of your calculations so you can see if you will have positive cash flow if there is zero appreciation. If you have positive or zero cash flow without appreciation, you can wait out down cycles.