How To Measure Your Real Estate Investment Performance

Apart from the fact that you have to be overly meticulous when venturing into the real estate market, you also have to be well knowledgeable when it comes to monitoring your investment. 

Selecting the best investment property is usually the beginning of your work in the real estate investment market. Over time, you’ll need to assess and measure your investment performance – to see if your investments (properties) are growing towards your goals.

In the following paragraphs, we’ll see how important it is to evaluate your investment performance as time goes on, as it helps a person evaluate whether or not they’re on the right track to achieving their financial goals. But, before you, as a real estate investor, can evaluate your performance, you first need to determine the ROI you are trying to achieve.

If your investments are not showing any returns or the return on investment is reducing, you’ll need to figure out why this is the case and decide on the next move to recover. In addition, because the real estate investment market changes all the time, you have to be conscious and find investment opportunities that will boost your real estate investing account’s performance.

 

1. Money Growth from Appreciation 

The main reason why investors put their money in real estate is capital increase. Therefore, the most important metric that such investors are interested in, is the Money growth that they have created as a result of holding on to their property.

Savvy investors keep a track of their monthly mortgage payments which include interest as well as principal payments and then use the market price to ascertain whether or not the money that they have built in the house is greater than the expense that they have incurred as a result of holding on to the house.

 

2. Consider the Role of Taxes on Performance

To assess real estate investment performance, it is necessary to calculate tax returns as some interest income may be tax-free. In this case, even though you may earn a lower interest rate, your rate of return on your investments could, in fact, be higher than the return on investment.

 

3. Fully Understand the Reasons Behind your Performance

There are a lot of reasons why your real estate investment is performing the way it is – the condition of the market, the kind of investments you own, how long you’ve held your investments or even a combination of these factors. In any case, you need to be knowledgeable about these reasons.

 

4. Factor in Inflation 

If you buy and hold a real estate investment property in the long term, inflation plays a major role when you measure real estate investment performance using rate of return. Inflation is when your money loses value over time. It’s the reason why a 1000 naira in 1980 could buy a lot more than today. The rate of return calculation that takes inflation into account is called real return. To calculate the real return, real estate investors have to subtract the rate of inflation from the percentage rate of return. For example, if the rate of return on your investments equals 10% in a given year, but inflation sent prices rising 3% in that year, then your real return would be only 7%.

 

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