Figuring Out Profitability From Gross Sales And Expenses Taxes Formula 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 find your break-even point:

1. Calculate your potential gross income.

Potential gross income is defined as the most income the property can generate at 100% occupancy. For example:

Your potential gross income for renting 10 apartments at \$350.00 per week each is:

10 units X \$350.00 p/week = \$14,000 p/month

\$14,000 X 12 months = \$168,000 per year.

2. Calculate your total operating expenses.

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

3. Calculate your total mortgage payment for 12 months.

This is called your annual loan service. You can use this formula to find your break-even point.

Break-even occupancy % point = (operating expenses + annual debt service) ÷ potential gross income X 100.

Here’s a quick example for you.

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

Break-even occupancy % point:

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

This means that when the property reaches about 63% occupancy, it will break even. Below 63% occupancy the property will operate in negative cash flow and at any occupancy above 63%, the property will have a positive cash flow position. Given these numbers you need to ask yourself these questions:

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

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

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

1. How much will increase?

2. How long does it take?

Here is a more basic issue:

What causes property values ​​to appreciate?

In general, revenue, in particular Net Revenue (After operating expenses), income drives the value of the property. The basic principal here is that real estate investors actually buy the property’s income stream. If you have more income stream to sell, you can expect to get more for it. The faster and bigger your revenue, the more likely the property’s value will increase.

Real estate prices will move with supply and demand and not necessarily with the pace of inflation. Prices tend to double in a few years and then do nothing for a few years. The better the property is located, the more it will be in demand. However, you will pay more for it though, as the more expensive the property the lower the yield.

If you’re worried about losing your job, you should check out income replacement insurance and disability insurance. It allows you to sleep well at night.

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