8 Essential Real Estate KPIs
Given the fact that real estate investments are usually considerable ones, it’s important to monitor the health of your investment. One of the best ways to do this is by implementing a group of Key Performance Indicators (KPIs). These are metrics commonly used to determine the ongoing value of your property, so you’ll quickly recognize any trends. Below are listed some of the real estate KPIs most often used to assess the current and future value of your property.
1. Gross Operating Income
This is a real estate KPI for investors that indicates how much income you can expect from a unit before subtracting out expenses. It takes in the income generated by the property, as well any pet fees or parking fees. This metric includes all the possible revenue which can be produced by the property each month, indicating its potential profit.
2. Occupancy Rate
Whenever you have a vacant unit, that represents a huge loss of income. It’s even worse because you’ll still be required to pay operating expenses on that unit. It’s pretty much impossible to be at 100%, but it’s important to maintain the highest occupancy rate possible. Save the date from previous occupancy rates as well as current rates, and even estimates on future occupancy. All these will have a significant impact on incoming revenue.
3. Net Operating Income
The net operating income includes the gross operating income, with all the expenses subtracted. This will be an estimate of the profit that the property generates, but which takes into account utilities, insurance, taxes, management fees, and vacancies. This figure will generally show what level of excess money can be produced by the property each month.
4. Capitalization Rate
The capitalization rate estimates a property’s general value in this way. The operating income is divided by the building’s current market value. This is an easy way to compare one property to another, but it has some limitations. Since it’s not calculated using the initial investment amount, the figure might be higher or lower. depending on expenses involved with the sale.
5. Internal Rate of Return
This KPI offers an estimate of total profitability for your property, taking net operating income one step further. This represents the long-term cash value of your property after your initial investment after cash flow and property value have been considered. Any property which has a high initial rate of return is considered to be a strong investment.
6. Cash on cash return
This real estate KPIs is a representation of the total property investment compared to the predicted monthly income. You can calculate it by dividing the estimated property cash flow by the total amount invested. The percentage result is the amount of your investment that you will be earning every month. This will permit you to predict how long it will take before your investment yields actual profit.
7. Return on Investment
When you’re considering future Investments, it’s essential to analyze and learn from your previous ones. That means you can calculate the entire profit that you made from any previous investments, and subtract out the total investment amount for the current one. Also, review net operating income and internal rate of return to compare those initial estimates with actual expenses and profits.
8. Loan to Value Ratio
All modern-day lenders use this figure to assess the risk involved with loaning to someone. If you’re going to be obligated to acquire a loan before making another investment, you should calculate this figure yourself to be prepared. High-risk loans will always cost an investor more money because additional fees or higher interest rates will be charged.