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How to measure the success level of your real estate portfolio

Rob Sittman - Thursday, June 24, 2021

In a few of our recent blog posts, we have gone over in detail some proven strategies to help ensure that a real estate portfolio is growing and progressing in the right direction. The proven methods we discussed in depth are:

  • Get in the game
  • The concept of leverage
  • Work smarter instead of harder
  • Find properties before they are listed on the local Multiple Listing Service (MLS)
  • The tried and true method of cold calling
  • Rental properties equal cash flow
  • Recognize and protect your most valuable asset
  • Know when to walk away and have the courage to do so

Please feel free to go back to these previous posts if you want to learn more about those strategies, and remember that Anaheim Property Managers can be a very helpful resource for both you and your portfolio. In this blog post, we are going to cover some calculations you can perform in order to determine how well the strategies you are applying to your portfolio are measuring up. With some very basic number crunching, an investor can determine where their portfolio stands today. Additionally, they can even determine which of the above methodologies might need more attention in order to get the desired results.

Calculate your net cash flow

Although this is a seemingly basic accounting principle, the more your portfolio grows, the more complex (and important) this figure becomes. Net cash flow is determined by taking the income and subtracting out all of the expenses. Be sure to deduct out items like utilities, HOA dues, property management fees and payroll (if you have staff). It is also a good idea to calculate net cash flow on both a per property basis and on a complete portfolio basis. Certain expenses might apply generally to your portfolio as a whole, but can also easily be equally divided among the different properties in the portfolio. This helps to determine cash flows on an individual property basis. Ideally, you want all of your properties to be generating a positive cash flow. However, it is important to remember that many times even an asset that is cash flowing negatively could actually be very valuable due to appreciation and future improvements that can be made to the property. It is also important to come up with a very detailed plan to take assets with a negative cash flow and find a way to turn them to positive cash flowing properties. If you are having difficulty determining a good strategy moving forward, it might be time to think about finding the most profitable way to remove the under performing asset.

Analyze your cash on cash return

Once you have calculated your net cash flow, this figure can be used to calculate your return on investment. Simply divide the net cash flow by the initial investment. It is important to do this on both a complete portfolio and per property basis. This will give you an idea of how assets are performing over time. It can also be beneficial to compare your results with other properties in the local market and see how your investment properties are stacking up against others in your geographic are. This can also provide some more clarity on whether or not certain improvements would improve how your portfolio is performing. Finally, this calculation can help you identify assets that are consistently under performing, which can help you determine whether or not they should be sold at the first available opportunity.

Appreciation analysis

The primary reason real estate is widely considered to be such a smart investment is that the majority of properties will appreciate in value as time goes on. You should compare the increase in value for your properties with the average appreciation of properties in the local area. If your assets are appreciating at the same rate as other local properties, you are definitely on the right track. If you happen to be exceeding the local average appreciation rate, then you are ahead of the curve!

The more you surround yourself with like-minded and successful individuals, the greater propensity you will have to succeed. Real estate agents, lenders, appraisers, and partner property management professionals can all contribute to your ultimate success. The more experts you are able to rely on, the better off your portfolio will be. Please don't hesitate to contact PMI Patron with any questions or for assistance with any Cypress property management needs.


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