Advertisers Use A Formula Based On The Cost Of Reaching Quick And Easy Formula For Success In Property Development

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Quick And Easy Formula For Success In Property Development

Here are some quick and easy formulas to use to figure out your break-even point:

1. Calculate your potential gross income.

Potential gross income is defined as the highest income a property can generate if it is 100% occupied. For example:

10 apartments that you rent for $350.00 a week each, your potential gross income is:

10 units X $350.00 per week = $14,000 per month

$14,000 x 12 months = $168,000 per year.

2. Calculate total operating costs.

Add up all your monthly expenses, including taxes, insurance, maintenance, repairs, utilities, landscaping, bookkeeping, management fees (if applicable), salaries, and so on. Then multiply that number by 12 to get your annual total.

3. Calculate your total mortgage payments for 12 months.

This is called your annual debt service. Use this formula to find your break-even point.

Payback Income Occupancy %point = (Operating Expenses + Annual Debt Service) ÷ Potential Gross Income X 100.

Here’s a quick example for you.

The occupancy of the building is 50%. At 100% occupancy, the building brings in $168,000 and operating expenses amount to $60,000. Annual debt service is $46,000:

Profitability level occupancy % point:

($60,000 + $46,000) ÷ $168,000 X 100 = 63%

This means that if the property reaches approximately 63% occupancy, it will turn a profit. A property with less than 63% occupancy is operating with negative cash flow, and with occupancy above 63%, the property is in a positive cash flow situation. Given these numbers, you need to ask yourself the following questions:

1. How long will it take to reach 63% occupancy?

2. Can I financially support the property until it reaches 63% occupancy?

Some of the questions that come to mind when it comes to real estate are:

1. How big is the increase?

2. How much time will it take?

The more fundamental problem here is:

What causes property value?

Revenue in general, esp NET INCOME (apart from operating expenses), income drives asset value. The basic principle is that real estate investors are really buying the property’s income stream. If you have more revenue to sell, you can expect to get more for it. The faster and more your income grows, the more likely the value of the property will increase.

Property prices move according to supply and demand and not necessarily at the pace of inflation. Prices have been known to double in a few years and then do nothing for several years. The better the location of the property, the more demand it has. You’ll probably pay more for it, though, because the more expensive the property usually is, the lower the return.

If you are concerned about losing your job, you should look into income replacement insurance and disability insurance. This will allow you to sleep well at night.

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