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## Quick And Easy Formula For Success In Property Development

Here are some quick and easy formulas to use to find your breakpoint:

**1. Calculate your total potential income. **

Potential net income is defined as the income a property can generate when 100% occupied. For example:

10 houses that rent for $350.00 per week your potential income is:

10 units X $350.00 p/week = $14,000 p/month

$14,000 X 12 months = $168,000 p/year.

**2. Calculate your total operating costs.**

Add up all of your monthly expenses, including taxes, insurance, maintenance, repairs, utilities, landscaping, accounting, management fees (if applicable), salaries and so on. Then multiply that number by 12 to get your annual total.

**3. Calculate your mortgage payments over 12 months.**

This is called your Annual Loan Service. You can use this formula to find your breakpoint.

Equity settlement %point = (Operating Expenses + Annual Debt Service) ÷ Gross Potential Income X 100.

Here’s a quick example for you.

The building is 50% occupied. At 100% occupancy the building brings in $168,000 and operating costs run at $60,000. Annual debt service is $46,000:

**Equal entrance area % area:**

($60,000 + $46,000) ÷ $168,000 X 100 = 63%

This means that when the property reaches about 63% occupancy, it will be demolished. Below 63% occupancy the property will operate with a negative cash flow and any occupancy above 63%, the property will have a positive cash flow. Given these numbers you should ask yourself these questions:

1. How long will it take to reach 63% of the population?

2. Can I finance the property up to 63% occupancy?

**Some questions that come to mind regarding Real Estate are:**

1. How much growth will there be?

2. How long will it take?

**The bottom line is this:**

What makes land valuable?

In general, income, especially **NET INCOME** (after operating costs), drives the value of the property for income. The bottom line here is that real estate investors are actually buying income from the property. If you have a lot of sales revenue, you can expect to earn more of it. The faster and more your income grows, the more the property’s value will increase.

Real Estate prices will move with supply and demand and not necessarily with the rate of inflation. Prices have doubled in a few years and then been stagnant for many years. The better positioned the property, the more demand it will have. However, you will pay more for it anyway, as the more expensive the property the less likely it is to yield.

If you are worried about losing your job you should look into income replacement insurance and disability insurance. This will allow you to sleep well at night.

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