Do you know how much actual income is derived from your business? In real estate many investors have never sat down to see how much their property actually makes for them. To see how strong the business is you should first ignore financing, income taxes, and depreciation and find out the net operating income after you subtract revenue from required expenses.
I sat down with an investor who owns a property in Portland, OR. A rough calculation of his cap rate identified that it was only 1.74%. This one bedroom condo was limited in the rents it could obtain, had high HOA costs, property taxes tied to current value, average management fees, and a vacancy rate of 8%.
The only reason that this landlord wasn’t writing checks all the time to subsidize the property was because he has approximately 75% equity. This creates a situation where it took an outside point of view to show that it is an under performing asset.
When was the last time that you sat down to see what your operating income after accounting for the input costs? Unless there is another reason to keep that product or service maybe it should be removed from your portfolio.
