8 Crucial Real Estate KPIs for Property Investment in India
When you’re investing in real estate, you have to consider several factors because of the high costs involved. Yes, you have to research extensively to know whether the stipulated investment is worthwhile or not.
Of course, you can approach the property specialists, who conduct a detailed study to determine whether the investment is feasible or not. For this, the key performance indicators (KPIs) help them to gauge the value of the property investments. Now, real estate KPIs are financial measurements that take into account different metrics to predict property values.
Here, we have listed some KPIs that have come in handy for real estate investors and rental management companies. However, note that KPIs have their limitations because they are only estimates. So, they do not factor in abstract values that can influence the purchasing decisions of investors, including future market rates.
Gross Operating Income (GOI)
GOI is the total expected income, which includes all expenses. This metric records the overall income that the property produces – with the inclusion of rent charges, parking rates, among other fees.
If you talk to the property maintenance company executives, they will clarify that the GOI metric gives a complete picture of how much money a property generates or its estimated monthly value. Also, being a hypothetical figure, the GOI does not encompass any unwarranted losses like vacancy.
Occupancy Rate
The rent management specialists will always advise maximizing the occupancy rate of your property to minimize losses. This is because vacant properties do not generate any income, while you have to continue bearing the operating expenses.
No doubt, property owners try to attract tenants, though achieving a 100% occupancy rate is not always possible. To know more about the precise occupancy rate of a property, you should learn about its previous occupancy rate.
Net Operating Income (NOI)
The NOI is calculated by eliminating the operating expenses from the GOI. The NOI provides a basic estimate of the profitability of the property. Management fees, maintenance charges, taxes, insurance, utilities, and vacancy rate – all are considered when calculating the NOI.
Even so, the NOI only displays the amount of surplus money that a property can generate every month. This metric does not factor in the initial investment expenses or one-time costs such as remodeling works and other interior designing Delhi costs.
Capitalization Rate
The cap rate is calculated by dividing the NOI with the property’s prevailing market value. The residential property management agents will further explain that you can get an estimate of the basic property value via the cap rate.
Importantly, the cap rate is not derived after accounting for the initial investment costs, which may vary depending on agreement by parties and other market factors.
Internal Rate of Return (IRR)
With the IRR, you can get an estimate of the ability of a property to earn profits.
The NRI property management experts recommend going for a property with a high IRR, for they are profitable investments. The IRR considers the property sale value, entire cash flow, and initial investment costs. As such, you get a clearer idea about how much income the property can generate over the long run. The IRR does not incorporate future investment figures and other influencers.
Cash on Cash Return
Using the CCR, you can compare the initial property investment with the probable monthly income. To compute the CCR, you have to divide the projected property income by the total investment figure. In turn, you can know how much percentage of your investment you’re getting back on a monthly basis.
As always, the property registration Delhi professionals will ascertain that the CCR does not include any unforeseen costs.
Return on Investment (ROI)
When computing the ROI of a property, you have to calculate the profits accrued and deduct the overall investment figure. More so, you must study the IRR and NOI, and you will know then how close your initial estimates are to real costs and profit.
Loan to Value Ratio (LVR)
The LVR helps financial organizations to analyze the risk of loans. Now, when you’re taking a loan to invest in a property, the LVR metric helps lenders to better understand your financial position.
In the case of high-risk loans, you have to pay higher interest charges and extra fees – all of which increase your general investment costs.
OVERALL
As a property investor, you may want to rely on property management company experts for their guidance. The real estate professionals can reveal more about the related risks, budding opportunities, duration, and viability of the investments that you’re pondering over. In turn, you can evaluate all the important factors before making your purchasing decisions.