Calculating Profit on Real Estate
Every real estate investor is in the business to make a profit. As in any business, the larger the profit margin, the better. However, real estate has so many different facets involved in the investment that it can be difficult for a new investor to determine the exact dollar amount of their profit after they make the sale. Because of the cost in not only materials, but time and labor expertise it can be easy to overlook assets that have been invested in the property.
First, calculate every penny invested in the property. This can be closing costs, interest payments, and the price of any improvements done to the property. Account for every expense down to the last .10 screw. These are your out-of-pocket business expenses. Your sale price minus this number is not your profit on the property.
Don’t undervalue the work you do on the property. For every bit of work you do yourself, determine a fair wage for a professional to come do the work. Spend five hours deep-cleaning the house or shampooing the carpets? Call a couple of local businesses to find out how much they would have charged to come do the job, and calculate that amount as your expense.
Did you spend time taking sale pictures or visiting with your real estate agent? Time is money, so be sure to calculate in a fair wage for that time spent as well. This can be either your wage at your current job that you have to take time from to do this work, or a fair wage for a receptionist or personal assistant.
While that sale price minus the dollar expense may look like a nice number, it doesn’t tell the whole story on the profit scale. If you spend any kind of time, money or effort on this piece of property, make sure it’s accounted for and figured in. If the numbers don’t pan out with this figured in, you’re not getting your money’s worth out of this investment.
