Investing in rental properties can be a lucrative enterprise. To ensure long-term success, you must manage your investments using a data-driven approach.
Monitoring key performance indicators (KPIs) in your rental property income statement can help you track the financial health of your investments. While tracking KPIs you can reinvest funds to garner a greater profit. You can make educated decisions and maximize your return on investment by checking on your rental properties' KPIs.
Keep reading to learn more about what KPIs you should track for your rental properties.
Net Operating Income (NOI)
One of the most important KPIs for rental property owners is NOI. Your net operating income shows the revenue from operations minus operating expenses. A property is profitable once it is generating a positive NOI.
Annual Cash Flow
Cash flow is the net income created by rental operations after all expenses have been deducted. Positive cash flow is critical for cost coverage and financial stability.
A strong cash flow can lead to larger profits. Improved opportunities to invest can act as a safety net for any unexpected financial issues that arise. If you break even, without financial gains, your investment may not be profitable.
Tracking Occupancy Rate
The occupancy rate is the percentage of time that your rental property is occupied. Higher occupancy rates indicate a consistent income stream.
Vacancies cut out of your profit margins. Lower rates may require a thriftier approach to marketing and tenant management techniques.
Gross Rent Multiplier (GRM)
The gross rent multiplier (GRM) is a screening statistic used by investors to compare rental properties. This can help you see what property will be the most profitable in a given area. The GRM is calculated as the ratio of the property's market value to its annual gross rental revenue.
Debt Coverage Ratio (DCR)
The debt coverage ratio is the measure of cash that is available to pay for any of the property's debt obligations. Lenders frequently use this statistic to assess the risk of a property. This metric is incredibly telling of an entity's financial health.
Return on Investment (ROI)
Return on investment is a performance metric that is used to assess an asset's profitability. ROI can be a crude indicator of the profitability of an investment. Comparing ROI's ensures that your investments are able to churn a profit.
The ROI can be calculated by the following equation: ROI= (Current valuation of investment- cost of investment)/cost of investment
If the ROI on an investment is net positive, it is a worthwhile investment. If a property is generating a positive ROI, you can justify investing in upgrades.
Prioritize Your Rental Property Income Statement
Tracking key performance indicators (KPIs) on your rental property income statement is critical for long-term success. These statements paint a full picture of your property's success by using data. By making data-driven decisions you can improve your profitability.
Rental property income statements let you monitor your cash flow, occupancy rate, ROI, DCR, and more. Reviewing your KPIs allows you to reduce risks and capitalize on financial opportunities. Understanding your rental property's financial health is critical for your overall profitability.
Contact our team at Kerr Properties, Inc. for all of your property management needs.