The discovery was made by Mr. Norman Neinchel, a Silicon Valley real estate entrepreneur, broker, and engineering mathematician. His discovery, and his extensive use of the process, has permitted him to become an income property advisor on a national scale.
Mr. Neinchel discovered a completely overlooked process that can do what every investor has always dreamed of being able to do. . . compute a purchase price based solely on the acceptable financial performance it must generate commensurate with the risks of achieving that financial performance. It is totally different and far more advanced than all current processes. more info here
He has quietly used it for years to buy, sell, and broker millions of dollars of income properties.
The process has recently been considered to be such a major breakthrough by the Federal Reserve and the House and Senate Banking Committees, that the software that implements it has been ordered by many of their economists. Ongoing discussions with them indicate their desire to explore its benefits for increasing the reliability of federally insured commercial lending!! It is the first time they have ever considered any process reliable enough to explore.
The software has also been ordered by business schools at major universities, and investors from all over the world. It is so self-justifying, easy to use and so nearly automatic, that anyone . . . even someone who knows virtually nothing about income properties, can determine the most to pay for a property in less than 3 minutes, regardless of what the seller wants for it, or regardless of what other similar properties have sold for recently nearby! Its results are extremely influential with sellers.
TEN31, Inc., a real estate investment firm in Louisiana (www.ten31.net) relies on this software to determine how much to pay for the many millions of dollars of income properties they buy each year all over the country.
"Norman Neinchel has a system for guiding real estate investors. It's not the kind of system found among the chip-counting gamblers at the roulette table."
San Francisco Chronicle
Here's how it all began. In order to maximize his own chances for successfully investing in income properties beginning in the early 1970s, Mr. Neinchel began a nationwide program of soliciting income property management companies for actual numerical income, expense, and price data on properties they had managed, and whether each property had been financially successful or a failure. He received an enormous amount of data on several thousand properties.
Over the next two years, using a newly available time-value-of-money calculator from Hewlett Packard Company (the hp-80), Mr. Neinchel employed its most powerful feature to compute the average annual yield actually earned by each property for its owner. That average annual yield is called the Internal Rate of Return (IRR), and is the universally recognized mathematical yardstick for determining yield from any investment, from a simple passbook bank account to a shopping mall. The math of IRR is extremely complicated and, before the advent of that calculator, it often took hours, and even days, using time-value-of-money look-up tables to determine the IRR from only one property! That calculator could do it in a few minutes!! It is important to understand that, at that time, IRR could be determined only AFTER the property had been purchased, held, and then sold. It needed to know what the purchase price and the eventual sale price were.
From those results he discovered something quite unexpected, but truly remarkable. He noticed an extremely close correlation between the resulting IRR and the interest rate on the original purchase loan. He discovered that virtually all the financially successful properties earned an IRR that was always between 1.50 and 3.00 times whatever that interest rate was. He also noticed that the quality of each property seemed to somehow sort themselves out by their resulting IRRs. For example, the higher prices typically paid for the higher quality properties forced them to earn the lower yield closer to the 1.50 number. Also, the lower prices typically paid for the lower quality properties allowed them to earn a higher yield closer to the 3.00 number (and sometimes more). In effect, that result defines a true risk-assessed yield -- high quality, low risk, low yield -- low quality, high risk, high yield. But not a single one of them that generated an IRR less than 1.50 times the interest rate was considered a financial success by the property management company! And that opinion was offered to Mr. Neinchel BEFORE the IRR was eventually determined!!!!
Mr. Neinchel realized that if he could somehow work the process backwards, that is, start with an appropriate IRR yield for a particular property of interest and then compute its maximum purchase price, he will have discovered the "Holy Grail" of successful income property investing: FORCE THE PURCHASE PRICE TO BE DETERMINED SOLELY BY THE PROPERTY'S OWN DATA AND THE RISK-ASSESSED ANNUAL YIELD (IRR) IT MUST EARN! That had never been done before, and it quickly became obvious that those calculators could not do it. Using his extensive math background, Mr. Neinchel spent 6 months developing the specialized math that could do it. Unfortunately, it was too impractical to use with any calculator, so it lay dormant for a few years until micro-computers came along. Then he embedded the math in a computer program. He calls the process Performance IndexingTM.
Since he already possessed the complete financial performance data on thousands of income properties, including their own raw data, their purchase prices, their eventual selling prices, and their resulting IRRs, he began to randomly test about 1,000 of them over a six month period to determine if his newly developed math imbedded in his software could accurately compute those same purchase prices just from their resulting IRRs and their property data. The results were truly astonishing!
Virtually all the resulting purchase prices generated by his software test were within 2.5% of the actual purchase prices!! It also revealed that all the failed properties were purchased at prices that were between 11% and 35% higher than what his software computed, because they generated IRRs that were always less than they should have been, and were often even less than 1.50 times the purchase loan interest rate.
It is extremely important to recognize just how truly revolutionary the implementation of this discovery really is! For the first time ever, anybody, even somebody who knows almost nothing about income properties, will easily be able to reliably and confidently determine the maximum price to pay for any income property that is for sale anywhere in the country in less than three minutes! And those income properties include simple duplexes, 1000-unit apartment complexes, small strip shopping centers, shopping malls and office buildings of any size.
In effect, it actually removes the uncertainty associated with trying to determine what price, or by what cap rate or gross rent multiplier, other similar properties have recently sold for in the area. Those methods are simple-minded rules-of-thumb that have absolutely no link to the true financial performance of any property . . . only a stab at a price! The only important task that needs to be performed after receiving the income and expense statement from the seller is to verify that data . . . a very simple task. Then, the Performance IndexingTM process will compute an extremely justifiable maximum purchase price determined solely by the propertys own raw data and the risk-assessed annual yield it must generate for the new owner!
The benefits of this discovery are so enormous that it will now be unthinkable to even consider investing in any income property without first obtaining the knowledge that this process offers! Those benefits and the process are now the subject of ongoing discussions with the appraisal industry plus some federal financial regulators and the business schools at several major universities.
Mr. Neinchel has now made the software available for an internet introductory purchase price of $75.00. Although he has given many free seminars that introduce the process to various users where they purchase the software, Mr. Neinchel has been asked by investors from all over the world to offer an intense workshop on techniques for its successful use. That is now in the planning stage.
Click here to learn more details about Performance IndexingTM.
If you choose to purchase the software, there is additional information on the order form about a very effective way to actually use the software. You may even read that information without actually ordering the software. If you want to read that information and/or order the software, click here.
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