Major Real Estate KPIs For Investors, Agents & Developers in 2022
By Moradeke Owa
| Last updated:
Sep 30
|
11 min read
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Monitoring real estate KPIs can be incredibly challenging for real estate professionals because there are so many of them. One of the main reasons you should prioritize some KPIs over others is that some significantly influence your sales while some don’t.
Here are the most important KPIs to track as a real estate professional; investor, developer, or agent.
A real estate KPI is a quantifiable measure used to evaluate a real estate organization’s performance in a specific area over time.
Using KPIs allows you to monitor and improve certain aspects of your real estate business, such as realtor performance, property potential, property development, and more.
One significant advantage of using KPIs is that it allows you to pinpoint your organization’s weaknesses and strengths. You can use this information to improve your weaknesses while focusing on your strengths.
Real estate KPIs aren’t just for agents; they can also assist investors and developers in assessing the viability of a particular project. Most commercial real estate companies, property management firms, real estate investors, real estate agents, brokers, and real estate developers use KPIs.
However, in this article, we will concentrate on three major categories of real estate KPIs.
Categories of KPIs in real estate:
The goal of buying real estate is to have a long-term asset that will generate income for a long time. Calculating when the real estate you’re about to invest in will begin to yield profits is pretty important.
The payback period is the number of years it takes for a property to recoup its investment. This KPI helps you determine whether the property is worth investing in, so if the payback period is very long, you may want to reconsider purchasing the property.
Payback period = Cost of initial capital for the project / Annual savings or benefits of the project
Before investing in a particular property, you should determine whether tenants like or dislike the property by calculating tenant turnover. This metric enables you to estimate the rate at which tenants leave or stay at a property.
A high tenant turnover rate indicates that tenants leave the property far more frequently than they stay, whereas a low tenant turnover rate indicates that tenants stay.
As a real estate investor, you should have very low tenant turnover because the time between the old tenant leaving and the new tenant moving in means the property is sitting empty and earning no income.
Also, the cost of renovating properties for each new tenant is significantly higher than the cost of maintaining the property of a regular tenant.
Tenants usually leave for legitimate reasons. So, if a property has a high turnover rate, it’s likely that something is wrong with the property or its management, causing tenants to leave.
Tenant turnover is typically calculated annually, but it can also be calculated monthly to quickly determine when your property is vacant.
Tenants Turnover = (Number of tenants leaving the property/Total Tenants) x 100
The average rent price per property is an important KPI for multiple property investors. It evaluates the amount of money each property earns monthly, quarterly, or annually.
The outcome of your average rent price per property guides you in determining when to raise or lower rent prices, and when tenants are not occupying your property.
You can also use it to track changes in your rental property income by comparing the current average rent price to the previous year’s.
Average Rental Price per Property = Total Monthly Income / Total Properties
The operating expense index is another name for the operating expense ratio. It is the cost of property maintenance versus the income generated by the property.
The benefit of using this metric is that it allows you to compare maintenance and income costs while also identifying properties that aren’t worth your investment. Operating expenses are also used to compare the profitability of similar properties.
Operating Expense Ratio = [(Total Operating Expenses – Devaluation) / Gross Revenue)] X 100%
The ideal operating expense index is between 60% and 80%. So, if the operating expense ratio is greater than 80%, you’ll be spending a significant portion of your revenue on maintenance and management, making the property unprofitable.
The most common factors influencing the high operating expense index are property age and poor property management. A poorly maintained property will incur high maintenance costs.
Old properties also require extensive renovations and ongoing maintenance, so you may end up spending more money on renovations and repairs than the property’s income.
This KPI helps you to determine how much you are risking by buying a real estate property with a mortgage. It also assesses the relationship between the property’s market value and the loan amount.
So, if the property’s market value is significantly less than the loan amount, it’s a huge red flag to acquire the property through loans.
The recommended LTV ratio is 20% to 40%; if it exceeds 50%. When the LTV ratio is too high, you may have to refinance the property (second mortgage) or even go into foreclosure.
Loan to Value Ratio = Mortgage Amont/ Appraised Property Value
A mortgage rate is the interest rate charged on a mortgage over a specific period. So average mortgage rate is the mean of your properties’ mortgage rates.
The main reason investors monitor mortgage rates is that they aren’t always fixed for the entire term of the loan. Interest rates rise and fall in response to interest rate cycles, inflation, and other factors.
Average Mortgage Rate = Total Mortgage Rates/Number of Mortgaged properties
An equity-to-value ratio enables real estate investors to know how profitable an investment is based on the property’s price versus its actual value.
The equity ratio is used to calculate a company’s leverage. A ratio of less than 0.5 typically indicates that a company is highly leveraged.
So, the equity-to-value ratio is the percentage of the property’s purchase price compared to its total appraised value.
The equity-to-value ratio and the loan-to-value ratio are similar in some ways. However, investors use the equity-to-value ratio to determine the value invested in the property and the profit it brought them, whereas lenders use the loan-to-value ratio to determine the risk of lending money to the homebuyer.
Equity to Value Ratio = Total Property Equity / Total Property Value
Using the listing-to-meeting ratio, you can keep track of how many people you’ve shown the property. It also evaluates how many people you’ve converted into buyers, renters, or investors.
Evaluating the number of listings you’ve acquired and comparing it to the number of sales pitches can help you determine the effectiveness of your sales strategy.
Listing to Meeting Ratio = Total Listings Acquired / Total Listing Meetings
The average commission per sale is the amount you earn as a real estate agent for each property sold.
Every real estate agent wants to know how much they make when they sell a property. this metric allows you to calculate your total commission on home sales over a specific period.
Average Commission Per Sale = Total Commission Value / # of Sale
This metric is commonly used by large real estate firms to assess the effort agents put into acquiring clients for the firms. It encourages agents to be proactive in their efforts to attract new clients for the firm.
It is the number of homes sold by an agent or firm compared to the overall homes listed by the same agent or firm. The main benefit of using this KPI is that it allows you the factors influencing sales in a region; type of house, income, and more.
Sold Homes per Available Inventory = Total Homes Sold / Total of Homes Listed
This KPI is also used to assess current real estate market conditions in a specific area. So if the YoY Variance rises, it indicates that demand for real estate properties is increasing.
It helps you forecast sales and property demand in a region allowing you to know when to list and when not to list properties.
YoY Variance of Average Sold Price = ((Current Year Avg. Price – Previous Year Avg. Price) / Previous Year Avg. Price) x 100%
A property’s number of days on the market helps you understand market conditions for it and if there’s a need to adjust the pricing. The less time a property is on the market, the better.
The primary benefit is that it improves your sales track record and reduces the number of times you have to pitch a property to investors.
If a property has been on the market for a long time, most real estate agents advise their clients to lower the price or make renovations to make the offer more appealing to buyers.
Monitoring revenue growth implies keeping track of the difference between previous and current revenue. It assists you in determining monthly, quarterly, or annual revenue growth or decline.
The outcome of measuring this KPI helps you figure out when to list more properties, pitch to more clients, and improve your overall sales strategy.
This enables you to keep track of how many clients you’ve contacted in to buy the properties you’ve listed. It’s a simple way for real estate firms to keep track of proactive real estate agents and how much effort they put into selling properties.
This allows you to assess your clients’ perceptions of you and their likelihood of referring others to you in the future. For example, you can ask them why and how you could have improved their experience.
Use this: Realtor Evaluation Form Template
Another advantage of client feedback is that it allows you to maintain the relationship you’ve established with clients and leverage it for future property sales.
This is an important metric for real estate developers to consider before starting a development project. It calculates a discount rate that makes the net present value of a project zero to determine the profitability of a property.
Most developers have an idea of what their required IRR is, so if the calculation results in a higher IRR than expected, they go for it.
This KPI is a debt-to-profitability ratio that enables you to assess your ability to cover the costs of the development project before interest and taxes.
Interest Coverage Ratio = EBIT( Earning Before Interests and Taxes) / Interest Expenses
This KPI helps real estate developers in monitoring the percentage of units in a building during its presale (before completion) versus the number of units when construction is completed.
If the number of units built is lower, it may indicate low demand, so measuring this KPI can help assess market conditions.
Another important factor to consider before starting a development project is the demand for properties in a specific area.
The demand growth KPI can be a bit tricky to quantify, so developers calculate it using other metrics such as population trends, the number of mortgage applications in the area, and construction permit requests.
Keeping track of KPIs is a tough task for investors, developers, and agents. However, you can streamline the process by adopting an effective software that automates the calculation of these KPIs.
With Formplus, you can easily automate data collection, report generation, meeting scheduling, and more. Here are some ways Formplus can help you simplify KPI tracking:
Formplus has several customizable templates that you can use to assess client satisfaction with your services and how you can improve them for a better experience.
Formplus also enables you to securely collect and store client data. Having clients’ contact details allows you to easily reach out to them for future sales pitches and referrals to their network when new properties become available.
Free Template: Real Estate Client Information Form Template
You can easily recruit the best minds in real estate by using application forms that allow you to evaluate their real estate experience and employment history. You can also customize application forms to highlight a candidate’s best achievements and qualities.
A multi-user account can also help your firm foster team collaboration and track agent performance. It also allows you to assign tasks to users by adding them to the file or folder.
You can collect client feedback, validate client identity, list rental properties, figure out what buyers want in a property, and more with customizable forms.
These forms allow you to collect data that evaluates your performance as a real estate professional and use the information to improve your future performance.
Monitoring the right KPIs as a real estate professional allows you to evaluate your performance in meeting set targets. It also provides insight into what you should focus on to increase revenue.
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