11 Metrics for Your Real Estate Portfolio

Everyone loves Excel! Pivot tables, pie charts, bubble graphs, colour-coded bar-scales!

Ok, that’s just me. I do love data. One of my most read blog posts is really nothing more than a big spreadsheet of real estate values since 1962. (NB – no, I can’t update that post. The way they collect data has changed too much to have real ongoing numbers).

Here’s 12 metrics I’ve found in my own experience, from my clients and from reading interesting things like annual reports.

  1.  Debt to Value (Book and Market)
    This one isn’t complicated on the face of it. What’s the current outstanding debt of your property divided by the current market value. That gives you a bead on how much risk you’re carrying, your potential ability to refinance and potential profits if you sell. You should also compare that to your book value if you’re depreciating your properties.
  2. Operating Expense Ratio (OER)
    People love this one when they’re buying properties and I’ve never really understood why, but they do. This is how much you spend on operational costs, before debt servicing, divided by the net income of the building. I think it’s important for comparing stabilized vs. non-stabilized properties and how fast you can get a poor asset under control. Companies like Mainstreet consider a stabilized building to be one that’s been under management for 24 months.
  3. Occupancy vs Vacancy
    I use two metrics here – first there’s vacancy rate. If there’s one vacancy in a 20 unit building you have a 5% vacancy rate in that month. You need to consider vacancy rate as a snapshot metric or a forward-looking estimation. Then there’s the historical vacancy rate, which I prefer to think of as Occupancy Rate – the number of units multiplied by the amount of time they were rented, divided by the number of units divided by the total amount of time. If you’re actively renovating to add value or just doing repairs to maintain cash-flow you may also want to be conscious of how much time you loose to renos – a rental-time-lost or down-time metric.
  4. Rent-Days Lost to Renovations
    Speaking of lost-rent metrics, here’s two ideas for you. If you’re a renovator and you have a lot of units or properties (for the single-family folks out there) – renovations take time and time is money. How long does it take you to do a reno? If you’re doing a similar reno over and over again, such as new flooring and countertops in every suite, how fast can your crew turn around a suite to be rent ready? I’d make the distinction that while it’s under construction it’s not available for rent, and then when you’re done renos and someone can move in it’s now counted as vacant. Every unit comes with 365 rent-days – it’s up to you to make sure as many as possible are fully occupied and paid.
  5. Rent-Days Lost to Turnover
    The turnover metric is hugely important in multifamily in a slow market. Assuming you can get a suite rent-ready as soon as your old tenant is out, how long does it take you to get it done? I’d say that same-weekend turnover is the goal and that same-day turnover is possible. You need to be in the unit before the tenant moves out to do little touchups and have a proactive onsite person to help coordinate moving, carpet cleaning and touchups. If rent is $1,000/month every day costs you $32.88. Get it moving!
  6. Loss to Lease
    This is a metric I believe I first saw on a Boardwalk annual report. Simply put it’s the difference between the rent you collected during the year from tenants on a fixed term lease (e.g. $1,000/month) compared to the full market lease. Imagine a year where full market was 950, 975, 975, 975, 995, 1010, 1050, 1050, 1050, 1050, 1050, 1050. Your leased unit income was $12,000, whereas the market is  $12,180. Your loss to lease is 1.47%. If you were worried you’d missed out on a rising market, I’d take that number as a reason to chill out.
  7. Incentives as a proportion of rent
    Self-explanatory. If you’re giving a discount for the first two months of a lease, or a free TV, or something else like free parking or laundry tokens – put a value on it and keep track of it!
  8. Length of Stay
    My favorite metric – how long have your tenants lived in your property. Better yet, how can you change this? Don Campbell suggested last night that when Do you see patterns by area, asset type or suite mix? How much better is a full single family house compared to a basement suite? With garage or without? Good data lets you decide what you want to buy moving forwards or what assets are underperforming and should be sold.
  9. Maintenance proportion of expenses
    Like the operating expense ratio item above, you should be keeping track of how much of your expenses are going to capital costs or repairs and maintenance. Usually it’s a metric I see that’s way too low and the building is slowly running into the ground. We’ll come back to properly planned spending.
  10. Utility costs per square foot
    I’m not convinced that this will really work across buildings, but it’s worth measuring utility costs and breaking it out to be a per square foot cost. It’ll help compare apples to apples, and if you’re looking at higher costs in some buildings you should also consider measuring adults or teenagers per unit and maybe square foot per person.
  11. Deferred Capital Costs
    I own a number of condos and I’m the treasurer of the board of one. I have a healthy respect for the idea of a reserve fund study, also known as a depreciation report. Simply put, look at the big expenses and estimate what they cost and their lifespan and work backwards to know what you need to save. You can put the numbers you get into context by comparing it to annual revenue or market value.For example, a shingled roof on a house may cost you $5,000 and last 20 years. That means that the day after the roof is installed you should to save $250/year for your next new roof.A little extreme? Maybe, but I’ve also seen a huge number of owners, both residential and commercial get absolutely screwed when these costs catch up to them. Just ask anyone who has been on the receiving end of a special assessment.

What about you? Any good measurements you’ve come across? Am I out to lunch? I didn’t even get into tactical management metrics like calls/ad, applications/vacancy or applications/lease signed.

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1 comment

  • Nice share, Chris. I think, cash flow should be an important metric in any business. One should have enough money in hand to carry out emergency repairs and manage for few months without tenant in case of vacancy. Negative cash flow can impact re-payment of loans too.