Analysis Tools for Real Estate Planning

Don't let the title of this article scare you; the tools I'm going to talk about are not that difficult to use.

Any time you are making decisions related to real estate you are likely to be making decisions that involve considerable sums of money. It only makes good sense to make the best decision possible.

Banks, mortgage companies, real estate developers all have entire departments dedicated to creating reports, simulations and analyses to help decision makers. In the past, individuals and small business owners were at a severe disadvantage when making decisions. They were forced to make wild guesses while their larger competition was making informed decisions.

Fortunately, it doesn't have to be this way any more. Today, software is readily available that can put an individual or small business in the same league with even the largest bank or development company.

The reason that this is true is that personal computers are so much faster today than they were 10 years ago. My laptop computer can crunch numbers faster than the fastest mainframe computers available to banks in 1994. The ability to crunch numbers is key to making good decisions. The more numbers you crunch the more possibilities you explore and the less likely you are to be caught by surprise by something that the big guys have already considered and planned for.

Unfortunately, software is not a magic bullet. You have to do some work if you want to be able to compete with an organized team of professionals.

Large organizations make decisions based on mathematical models. When you do a few "what if" calculations on the back of a napkin to make a budget for your vacation, you are creating a simple model. More sophisticated models are readily available for real estate, such as the Mortgage Payment & Amortization Calculators at Yahoo. These allow you do calculations in minutes that would take days with a pencil and paper. Being able do calculations easily encourages you to consider more possibilities.

With the tools available at Yahoo you can easily consider a few dozen possibilities. Spending just a couple of hours now can save you thousands of dollars over the course of a 30-year mortgage and requires no special skills or training.

If you are really serious about taking the next step to really put yourself on even ground with the big guys, you need to either develop some skills or pay someone who has them to help you.

The big guys use risk analysis tools such as Crystal Ball to make informed decisions. If you know how to use Microsoft Excel (or are willing to learn) you can build powerful models to help you make decisions. Again, hours invested now will mean thousands of dollars later.

If you know Excel I suggest you get started something less expensive than Crystal Ball such as the Excel Financial Analysis and Modeling tools from Dot XLS Excel Consulting.