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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 breakeven point:

1. Calculate your potential winning income.

Potential gross income is defined as the maximum income the property can achieve when it is 100% occupied. For instance:

Here are the 10 apartments that rent for $350.00 per week for your potential income:

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

$14,000 X 12 months = $168,000 p/yr.

2. Calculate the total operating costs.

All your monthly expenses, including taxes, insurance, maintenance, repairs, utilities, landscaping, accounting, management fees (if applicable), salaries, etc. Then multiply that number by 12 to get your annual total.

3. Calculate your total mortgage payments for 12 months.

This is called Annual Debt Service. You can use this formula to find your break-even point.

Percentage occupancy %point = (Operating Expenses + Annual Debt Service) ÷ Potential Net Income X 100.

Here is a quick example for you.

The building is 50 percent residential. At 100% occupancy the building is $168,000 and operating costs are at $60,000. Annual debt service is $46,000:

Point % point of occupancy:

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

This means that when the house reaches 63% occupancy, it will be finished. Below 63% occupancy the property will operate in a negative cash flow and any occupancy above 63%, the property will have a positive cash flow position. Because of these numbers you need to ask yourself these questions:

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

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

Some of the questions that come to mind about Real Estate are:

1. How much growth will there be?

2. How long will it take?

The main problem here is:

What causes a property to appreciate in value?

In general, income, in particular NET ARRIVALS (after operating expenses), property value drives income. The basic principle here is that real estate investors are actually buying income from the property. If you have more income to sell, you can expect to get more for it. The faster and larger your income increases, the more likely the value of the home will increase.

Real estate prices will move according to supply and demand and not necessarily according to the rate of inflation. Prices have been known to double in a few years and then do nothing for a few years. The better the location of the house, the more it will be in demand. However, you will probably pay more for it, because the more expensive the property, the lower the yield.

If you are worried about job loss then you should look into income replacement insurance and disability insurance. This will allow you to sleep well at night.

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