No matter who you are, a new business or a veteran, dealing with real estate can sometimes become overwhelming. The market is volatile, prices keep fluctuating, and the competition is very stiff. According to NAR reports, there are more than 1.5 million registered real estate agents in the USA. But the inventory in this country is running low, and due to high mortgage rates and rising inflation, real estate sales are going down. How do you measure success in such a competitive market?
Using KPIs and various metrics to measure your progress is the only way to get ahead of the competition in the real estate industry. At the same time, these KPIs also help measure your own success and give you detailed insights on ways to improve. When you keep these KPIs in check and follow them closely, you can plan strategy and leadership accordingly to grow your business with time.
So, what key metrics and KPIs should you keep an eye on? It can be hard to determine, given that real estate KPIs differ from those of other businesses. This article will do a detailed walkthrough of all the KPIs that should matter for your real estate business. Read on to find out more.
What are the top 8 KPIs in a real estate business?
The process can look a little overwhelming if you are new to tracking real estate KPIs. Here is a list of the top 8 KPIs and metrics you must track. We will also help you understand why each is equally important for your business.
Payback period
The payback period is always at the top of the list if you are investing in your own real estate business. The payback period analyses and makes a report on how long it takes you to pay back the initial amount of money you invested in a property. It also helps you understand which properties under your portfolio are performing better. Once you understand that, you can plan your future investments accordingly.
Tenant turnover rate
A real estate business's biggest KPI is checking the tenant turnover rates for their properties. Tenants turnover costs thousands of dollars each time your lease does not get renewed. So, check to see how often tenants leave your properties. This will also provide insights into why tenants may leave your property. If you find a root cause, you plan your strategy and leadership to mitigate the problem before it becomes a roadblock for your business.
Average rent price per property
What is the revenue that your properties are generating? What is the average rent that you collect in a month, and how much of it can be considered as profit? This helps determine if you have any actual income or if all of the profits go into basic maintenance and operating expense costs.
Operating expense ratio
You should look into the expenses associated with managing and maintaining the properties in addition to finding out how much money they are bringing in. You can then compare operational expenses and rental income to see if there are any methods to make better use of your time. The ratio of operational costs to rental income that works best to keep businesses afloat should always be under 80%.
Repair and maintenance costs
How much is the property upkeep taking? Are repair and maintenance costing you much more than rent is bringing in? This might make the property a bad investment, and it may be time to rethink your business plans. If need be, you can let go of a few properties and add new ones whose repair and maintenance costs are budget-friendly.
Client feedback
Client feedback is one KPI that many real estate businesses do not take seriously. But that can become a pitfall. To ensure growth, you must listen closely to what your client says about your properties. If the average client feedback is on the positive side, then it indicates clear business growth. If clients are suggesting some changes, take those seriously, evaluate them and try to incorporate these changes into your existing working system.
Number of active listings
How many active listings do you have on the market? How long are they taking to sell? The listing-to-sale time difference is a major KPI for real estate businesses. The faster properties sell, the better ROI your business has. If properties are taking too long to sell, then there might be a need for some change in business policies. You can either rethink your sale strategy or check to see if the property is good enough to be sold at the asking price.
Organic traffic on listings
Paid marketing pieces on the internet always have more traffic. You need to check and see how much organic traffic your property listings are getting. This will help you understand your actual outreach. If your organic traffic is low, then you can strategize with your sales and marketing teams to rethink your plans. Bring in better attractions and make the offers more customer-centric to get better traffic.
This is one metric that is not specific to real estate businesses alone, but it is crucial nonetheless. You need to check how every investment you have made has worked historically. How much profit or loss did a particular investment bring in your pockets? Keeping in mind the inflation and recession rates, did it have any actual profits that benefitted you? All of this can be measured when you measure your ROI.
Average cash flow
The average cash flow of your business indicates how well your business is performing. Your business is performing well if you have a stable cash flow in your accounts and the money is always rolling. If you are always struggling to make ends meet and your credit bills are rising, then there is something wrong with your general business strategy. It is time to reassess.
More than 82% of small businesses fail due to cash flow issues. If you measure your KPIs and keep track of your metrics, you will never reach a position where you have to struggle with your cash flow. Are you feeling a little overwhelmed by the process? You can talk to the KriyaGo accounting experts to see which KPIs would work best for your business.
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