But that brings us to our next point: <\/strong>Alone, these metrics won\u2019t tell you all that much. You need to know what you\u2019re looking for in the data to make it meaningful.<\/p>\nKeeping Your Focus<\/h2>\n
In many cases, dashboards and reports help tell a valuable story even when analyzing just a few metrics. For example, a glance at a comparison between your utilities expense ratio and industry benchmarks will immediately shed light on strategic opportunities you may have been missing. <\/p>\n
In most industries and niches there are a select few metrics we refer to as \u201cnorth star\u201d metrics. We like to think of this metric as the one that\u2019s the most important to keep on track, all things considered.<\/p>\n
It\u2019s not always possible to peg just one \u201cnorth star,\u201d but if we had to pick one for rental real estate and portfolio management it would be net operating income (NOI), closely followed by the internal rate of return (IRR) for each investment.<\/p>\n
The higher a property\u2019s net operating income, the more the property is worth. Plain and simple. It is a key part of calculating a properties capitalization rate (cap rate), which is a common metric used to compare real estate investments. It can be argued that the cap rate is really the \u201cnorth star\u201d and not NOI, but because the cap rate varies market to market, focusing on increasing NOI through increasing revenue (i.e. rents) and reducing expenses will almost certainly steer you in the right direction.<\/p>\n
The other guiding metric (let\u2019s call it \u201cSirius,\u201d the brightest star in the sky), would be the IRR. The IRR is a metric sophisticated investors use to measure ROI, compare investment opportunities, and determine the optimal selling point. This is because IRR takes into account both the timing and magnitude of future cash flows. In many cases, the higher the IRR the better, and the longer an investment can sustain a high IRR, the better. The year (or other period) the IRR peaks, indicates the property\u2019s optimal selling point.<\/p>\n
Real Estate is in Our Name<\/h2>\n
At The Real Estate CPA (Hall CPA)<\/a>, we exclusively service real estate investors and business owners, which allows us to have a deep understanding of the various accounting and tax strategies available to this select group.<\/p>\nMeanwhile, other accounting firms service several different industries, which makes having this deep level of understanding about any particular industry difficult and leads to missing key strategies that can help real estate investors, especially as it pertains to advisory services.<\/p>\n
All of our CPAs are real estate investors themselves or grew up in a real estate family, which allows us to provide unique operational insights that other accountants may never see.<\/p>\n<\/div>\n
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