Having a portfolio of investment properties is a wonderful way to build wealth, but what good is it if it is not providing positive cash flow? When assessing the value of your portfolio, consider each property individually. Here are some metrics that can help determine value:
- Net cash flow – Your income minus your expenses equals net cash flow. Include all expenses, such as maintenance, utilities, and payroll. This will determine if your investment properties are producing a positive cash flow.
- Cash-on-cash return – Divide net cash flow by the initial investment. This result will show how an investment property is performing over time. Compare the cash-on-cash return results of your investment properties to those of other properties in the local market and see if there are any improvements you could make to increase the value.
- Appreciation – This refers to the increase in value of an investment property over time. Compare this appreciation to the local market and determine if this property provides long-term benefits.
After determining the value of your portfolio, you should have a good idea of the investment properties that are worth keeping and those that may not be. In some cases, it makes sense to cut your losses and walk away from an investment property if it is not providing positive cash flow or does not seem to have the potential to provide it in the near future. Investment properties that are not profitable or take up too much time are likely not worth keeping, and the assets are better allocated elsewhere.
Would you like to speak with a member of the RLG team to discuss the value of your current investment property portfolio and determine areas for improvement? Give us a call today! We would love to help you work with the properties you currently have and multiply your investment portfolio.