Key Performance Indicators, also known as KPIs or metrics, are quantifiable measures used to assess and understand the performance of businesses in the real estate industry. The given measured performance can be analyzed in different business segments – from individual performance to the potential of property investment.
The information received from KPIs is very essential for real estate. Whether you are an investor, real estate business owner, or even a real estate agent, keeping track of the performance will help you understand the profit and losses, identify the areas that need improvement and make better decisions.
KPIs for Real Estate Investors
- Return on Investment (ROI): It is important to know how well the investment has performed, so you plan your next investment move accordingly and see your wealth grow.
- Payback Period: The payback period KPI determines the number of years it may take for a property to get back to the initial investment amount.
- Tenant Turnover: This important metric will help you understand the rate at which your tenants are leaving. It is preferred low, which means your property is properly occupied and helping you make money. You may lose a lot of money when tenants leave, and a new one moves into your property. This is a high-level real estate KPI, and it is best to be utilized if you calculate it on an annual basis.
- Average Rent Price Per Property: This metric will help you understand how much are your units renting for and how does it compare to the last quarter or year. This real estate metric clarifies a particular average monthly rental amount to help compare quarterly or annual changes.
- Operating expense ratio: This metric will help you determine the cost you utilize to manage and maintain your properties. Once you get an understanding of the same, you will be able to decide to compare the operational costs to the rental income.
KPIs for Real Estate Agents
The real estate agent community has become an integral part of property transactions. Here are some real estate metrics for the real estate agents that can help them understand their performances in their respective offices and individual agencies.
- Average commission per sale: This metric is important to understand the profit and loss you are making upon the property you sell. You must sell high-priced properties if you, as a real estate agent, earn commission in percentage.
- Revenue growth: Everybody wants growth of revenue and a higher revenue comes with a higher net profit. It is important to track monthly, annually, quarterly growth in understanding your performance and comparing it to the market conditions.
- Number of calls made: This key performance indicator is important as to earn, you have to find leads, make calls to your customers and seek out prospective clients actively.
- Sold homes per available inventory: This real estate metric will help you understand and analyze the number of homes you sold and compare it to the number of properties that are listed in the specific region.
- Client feedback ratings: As soon as a deal gets closed, you are supposed to take feedback from your client. Getting feedback should be one of the integral parts of your deal closing process, as this is how you will get referrals and you may develop a potential clientele who will come to you for business, almost always.
KPIs for Real Estate Developer
Since real estate developers come with a high stake before they decide to start a project, they need to analyze the market conditions and project cost and it is possible with a real estate CRM. Here are a few KPIs that will make the real estate developer’s decision-making process easier.
- Internal Rate of Return (IRR):- This metric is used to understand and evaluate the importance of the project by calculating the rate of return that will result in a net present value of all cash flows equal to zero. If it is higher than the company’s required rate of return, then the project should be kept on hold and considered once before exempting it.
- Interest coverage ratio: Many real estate developers are not developing the properties with their cash. They take loans instead. The minimum amount you are supposed to pay is the interest you have on the loan. This real estate developer key performance indicator will measure the company’s ability to cover the expenses with the earnings before the outcome of interest and taxes. The process of taxes can be complicated; that is why it is preferred to have Real Estate CRM software.
- Percentage pre-sale sold: Another Real Estate KPI that tracks the percentage of the units that are accounted for pre-sale once the construction is done. It is often used by the developers who are deciding over the market’s favorable conditions. It is also used by the agents and investors who are willing to gauge the market conditions.
- Real estate demand growth: Based upon the conditions of the market matters, you will not be able to develop a region without any demand. The Real Estate Performance Metrics are difficult to forecast when the demand is high. It is estimated when you use the mortgage application numbers, construction permit data, population trend and analyze all this with Real Estate CRM Software.
- Construction cost per square foot: When prospective buyers opt for buying a property, they are willing to know what amount they are paying per square foot. In such a situation, it shouldn’t come as a surprise for the developers to track the construction cost per square foot for their projects. This real estate developer metric will help develop a project budget and decide the unit sales prices.
These real estate KPIs and metrics are helpful in getting an insight into how well your business is performing. These also help you identify key areas that may need realignment for you to make more profits.