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How to measure the success level of your real estate portfolio

System - Thursday, May 20, 2021

In some of our recent blog posts, we have discussed strategies to help ensure that a real estate portfolio is trending 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 Sunrise Property Managers can be a fantastic resource for you and your portfolio. In this blog post, we are going to cover a few methods that you can use to measure how well the strategies you are applying to your portfolio are doing. With some basic analysis, an investor can determine where their portfolio stands and even which of the above approaches might need more attention in order to get the desired results.

Calculate your net cash flow

Although this is a 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. Don’t forget to deduct things like utilities, HOA dues, property management fees and payroll (if you have staff). It is smart to calculate net cash flow on both a per property basis and a complete portfolio basis. Some expenses might apply generally to your portfolio as a whole but should be equally divided among the different properties in the portfolio to determine cash flows on an individual basis. You want all of your properties to be generating a positive cash flow. However, it is important to remember that often times even an asset that is cash flowing negatively could be valuable because of things like appreciation and future improvements that can be made to the asset. It is also important to devise a detailed plan to rectify assets with negative cash flow and turn them to positive cash flowing properties. If there doesn’t seem to be a good strategy moving forward, it might be time to think about finding the most profitable way to unload that asset and move on.

Analyze your cash on cash return

When you have calculated your net cash flow, you can use it to calculate your return on investment. Simply divide the net cash flow by the initial investment. This should also be done 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 portfolio stacks up. It can, in addition, provide some more clarity on whether or not certain improvements would improve how your portfolio is performing in the cash on cash return realm. Finally, this calculation can also identify assets that consistently under perform, which can help you determine whether or not they should be sold.

Appreciation analysis

The main reason real estate is considered such a smart investment is that the majority of properties will appreciate in value over time. You should compare the increase in value for your properties with the appreciation in the local area. If your properties are appreciating at the same rate as other local properties, you are definitely doing well. If you are exceeding the local average appreciation rate, then you are ahead of the curve and should keep doing what you are doing.

The more you surround yourself with like-minded and successful individuals in real estate, the greater chance you will have to succeed. Real estate agents, lenders, appraisers, and partner property management professionals are all valuable relationships to foster. The more experts you are able to rely on, the better off your portfolio will be. Please don’t hesitate to contact PMI Key Partner with any questions or for assistance with any Sunrise property management needs.


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