Looking at the returns of a portfolio is different from analyzing an individual property. It is looking at the sum of the properties to give an overall health, so it does not take all the standard metrics into account.
Begin with Market Value and Debt
Then look at Income and Expenses, including Loan Servicing
METRICS OF VALUE:
- EQUITY POSITION = Market Value – Value of Debt (Loans)
- CASH FLOW = Income – Expenses – Loan Servicing
ADDITIONAL METRICS and Valuable Information:
- % Debt – % of Market Value held in Debt (Loans)
- Expense Ratio – % of Income that are Expenses
- DCR (Debt Coverage Ration) – Ratio of Net Income to Loan Servicing
- ROE (Return On Equity) – is the amount cash flow received as a percentage of the EP (Equity Position) held in all properties.
- Depreciation Write-Off – the % of the original purchase price able to be taken as a write-off against income annually
- Property Tax Basis – the amount of the Value you are still able to write-off annually in depreciation
ADDITIONAL NOTES:
Traditional metrics like GRM & CAP Rate do not really apply, as they are more important at the purchase than evaluating later.
Once you have these numbers you begin to look at RESTRUCTURING YOUR PORTFOLIO.
