Buying, selling, or renting real estate can be an intimidating process for investors who don't know which numbers they should focus on. And while the number of metrics may seem daunting at first glance, it's actually quite straightforward to understand what they are and how they work in real estate investment.
In this post, we will go through some examples and best practices for real estate investors to help them when doing their financial calculations. Let's get started!
We know you're probably itching to learn a little more about these real estate metrics -- that's why we've put together this short intro with all the nitty-gritty details. But if you don't want to read all the way through, just click here to jump right to the list of real estate metrics!
What is a metric?
It's a very specific type of measurement for something. It can be about physical properties like buildings, or it can be about something intangible like financial performance. There are two different types: absolute and relative. Absolute Metrics are numbers that are exact, rather than estimates or approximations. This means that they are either exact values or have an exact formula so they can be calculated. For example, someone might say "the rent on this building is $30 per square foot. That's higher than the $20 per square foot in 2012, but it's still considered fairly priced for the area." Their exact statement is a metric because they are talking about the amount of rent from a specific property.
Relative Metrics are comparisons or estimates. For example, someone might say "the annualized return on this building was 3% annually over the last 10 years. That's down from 6% in 2012." They are not talking about a specific property, but they don't have to be. They could be talking about an entire portfolio of properties (which can also happen), and they could even be talking about all real estate investments over all time periods. Their statement is a relative metric because they are giving a comparison between the amounts of returns from different periods, rather than saying that this particular building had a certain annualized return.
Why do I need metrics?
There are many reasons for real estate investors to use metrics. Let's look at some examples:
Knowing how much it costs to operate a property in an area can help decide whether it makes more sense when compared to the cost of renting another property in the same area, or renting out another one in a different location that might provide higher returns or lower costs. This is especially important if they are considering buying a property because it can help them decide whether the costs of maintaining that property will support the potential return on their investment.
Knowing how to find profitable properties in an area can help investors make decisions that will maximize their profits. If they know what numbers are already being brought in by other areas and properties, then they will have a better picture of what to expect at a new property. They should be able to tell if there is a wide price gap between properties so that they know where the people are walking that might be interested in theirs. This can also help boost their confidence about the property and allow them to see how their marketing efforts will benefit them in bringing in higher returns.
Knowing how to analyze the performance of a property can help investors decide if it is time to sell. If they know what numbers they should be getting from a property, and they aren't hitting those numbers, then they will know that it's time to move on. They are also able to see where they might be able to save money or increase the value of their building by making some changes.
Now let us have a look at another thing that helps in real estate metrics i.e. real estate ROI calculator.
Let us have a look at what it is and how this metric works? When a realty investor decides to buy a property with the hope of making a profit from it, he or she typically needs to determine how much money they can expect to make and what they can expect in return. This is where an ROI calculator comes in handy. An ROI calculator will take into account factors such as the purchase price and interest rates, as well as the length of time for which the investment will be held on your behalf. It provides this information so that you can see what kind of return you are expecting given your investment before it moves out from under your control.
In order to calculate the return of an investment, you will need to know the purchase price and the interest rate. This information is typically listed on your closing statement, which will usually have a line item stating what your total cost was for a particular property.
If you have a few years' worth of data, can mine public records to determine average returns over time, or can crunch numbers using an Excel spreadsheet, you could also calculate the return yourself based on annualized variables such as the time it takes for one year's worth of equity to rise. However, if you are looking for a more limited answer that is much easier to work with, this calculator is for you.
As an example of how to calculate the return from a real estate investment, assume that property had an original cost of $150,000 in 1998. The average annual rate of return was 8.5 percent for 22 years, and the remaining balance on this property would be $106,693 in 2013 dollars. The calculator can be used to determine what the return would have been if this property had been held for the project duration (22 years).
In order to use the calculator:
When using an ROI calculator to project the future profitability of your property, remember that not every investment is meant for the long term. In some cases, a real estate investor may need to sell a property due to impending financial issues or other personal reasons, and this could mean that there is little or no time for investing between purchasers. In other cases, the investor may be looking to sell the property rather than continue holding it in order to take advantage of rising market prices. In these instances, the return on investment calculator can be used to determine how much profit can be obtained by selling your property within a certain amount of time based on current market prices.
In order to use the calculator:
The return on investment calculator, as well as other kinds of real estate calculators, can be found online through third-party websites. Some of the most popular sites that provide real estate calculators include Zillow and Realtor Calculator. Many of these sites also provide a greater number of tools for the real estate investor that may help in more instances than simply calculating return on investment.
**This is how you will be able to use the real estate ROI calculator. **
This is all about the real estate metrics. Though if you need more guidance and help on the same, then you can seek help from Better Capital and get the best help from them about the same.
Few other calculators you can refer to as well Return on Real Estate Investment (ROI) Calculator from Zillow and ROI Calculator from Realty Calculator
