2 KPIs Every Real Estate Business Owner Needs To Track

How To Improve As A Real Estate Business Owner

Is it possible to objectively measure how “successful” a real estate business owner is in today’s fast-paced — and sometimes overwhelming — marketplace? Not surprisingly, the answer to such a simple question is anything but. The relative nature of the word success is, in and of itself, ambiguous to say the least. What you’ll find is that, like everything else, there are two sides to the “success coin.” What may be successful to one investor may be an utter failure to another professional, and vice-versa.

It’s worth noting, however, that there are strong arguments to be made on each side. Having said that, I maintain that it is possible to measure the success of a real estate business owner — objectively, nonetheless. Not only that, but I am also of the belief that there are several key performance indicators (KPIs) that, if tracked properly, can improve your ability to successfully invest in real estate.

While there will almost certainly be a large contingent of people arguing that success is objectively subjective (and they wouldn’t be wrong), there are ways to determine the level of one’s success — and relatively easy ways, at that. If for nothing else, KPIs award savvy real estate business owners the ability to track the performance of their most important activities and tasks. What’s more, I’d argue that those who are able to track their performance stand a better chance of realizing success than those who don’t bother tracking the most important metrics in the industry.

2 Important Real Estate Business Owner KPIs

If you are interested in improving your status as a real estate business owner, I highly recommend tracking what have become widely known as KPIs. Otherwise known as key performance indicators, KPIs are exactly what their names would lead you to believe: a specific performance measurement. Perhaps even more specifically, KPIs measure the success of a particular activity in which an organization engages in. Those companies tracking the right KPIs will ultimately be able to measure their overall success, effectively making it easier to improve.

Not all KPIs are created equal, however. While some are unequivocally invaluable to measure, others may not demonstrate the same level of usefulness. In order to improve as a real estate business owner, you need to be tracking the right KPIs. If you are otherwise unsure of which metrics to measure, here are two of the most important to pay special considerations to:

1. Construction Budget

While relatively obvious, I would be remiss if I didn’t include one of the most important KPIs investors need to keep track of: rehab costs. And though most investors are probably already doing so, it bares worth repeating: few KPIs are more important to today’s average real estate business owner than the money they spend on hiring contractors to complete specific tasks. It’s worth noting, however, that your construction budget is an important KPI because it is both trackable and able to be improved upon; two of the most important factors exhibited by KPIs. At the very least, it stands to reason that the less you spend on construction costs (without sacrificing end results), the more you’ll make on the back-end of a deal.

It goes without saying, but the less you can spend on your construction budget, the better off your bottom line will be. However, that’s not to say you want to hinder the final product. As a real estate business owner, it’s in your best interest to provide homebuyers with a quality product. There’s no reason you can’t simultaneously offer a great product while effectively cutting back costs.

For starters, I recommend keeping track of how much individual projects cost, or even how much contractors are currently costing you per hour of labor. Take note of how much you are spending on everything, and make sure you are keeping it on record; only then will you know just how much your KPIs can be improved. Therein lies the true benefit of monitoring KPIs: it identifies areas of improvement.

While the answer may not be apparent, there are almost always ways to reduce your construction budget without sacrificing the quality you have come to expect.

If you haven’t tried it already, try negotiating with your current contract (if you are pleased with their work, that is). It’s entirely possible they will be willing to drop their labor cost if you can promise them more work on current and future rehabs. If that’s not in the cards, it’s never out of the realm of possibility to pit two contractors against each other. If they want work, there’s no reason they won’t lower their prices to secure the job.

Case in point: there are always ways to improve your construction budget, and only those that are tracking how much they are spending will be able to do so.

2. Scheduling Time

It needs to be noted that not all KPIs carry a monetary value, as is the case with number two on the list: scheduling. You see, money isn’t everything; time is — at least to today’s real estate entrepreneurs. It’s true what they say: time really is money. Scheduling, or the amount of time it takes to complete a rehab, for instance, is a critical KPI every investor needs to keep close tabs on. At the very least, understanding how long it’ll take to complete a project is of the utmost importance, and only those that can accurately track their schedule will be able to make improvements on future projects.

Timing, as it turns out, is one of the most important KPIs investors can account for, as it is something that they should always try to improve upon. And what are KPIs if not for measurements to identify areas of improvement?

Say, for instance, your first rehab took three months to complete. Over the course of the rehab you will have encountered a number of costs: holding costs, insurance costs, construction costs and many more — all without bringing in a single dollar. Typically, investments will cost you more money the longer you hold onto them, so it’s in your best interest to get in and out as fast as possible. Every day you hold on to your last flip deducts from your bottom line, so it’s best to implement a schedule that reduces said losses. It’s quite simple, actually: the better you are at following a schedule, the more likely you will be able to reduce overhead costs and increase your bottom line.

Take note of how long every rehab takes, from beginning to end, and be sure to keep a running record. You will find yourself compiling a list of numbers (30 days, 40 days, 50 days, etc.) that are more valuable than you realize. It’s those that know how long to expect a rehab to take that will have a more sound exit strategy. If you can accurately identify the length of time it’ll take to rehab and sell a home, budgeting will be a lot easier. What’s more, those that can improve on that number stand a better chance of realizing more future successes.

Conversely, those that expect a rehab to take 30 days, but instead witness their latest project eclipse the two-month point, will be in for a rude awakening. They will first recognize that the extra time wasn’t budgeted for, and they may have to make sacrifices elsewhere. That could mean cutting costs on materials, or even projects altogether. Whatever the case may be, it’s entirely possible for improper scheduling to derail an entire project, so be sure to add it to your KPIs.

Track how long rehabs take, on average, and strive to improve your baseline. Those that are able to get in an out of a project will find that making a successful career out of real estate investing is a lot easier when time is of the essence; if you can improve your scheduling KPI, it stands to reason you will, too.

What’s This All Mean For The Real Estate Business Owner Salary?

Now for the important question: How do KPIs impact the average real estate business owner salary? In a word: efficiency. As I already alluded to, KPIs are essentially indicators that objectively highlight the effectiveness of various functions and activities within a business. If you can improve each of the KPIs you are tracking, or become more efficient in achieving the results you desire, you will notice an improvement in your bottom line.

Take, for example, the two KPIs I talked about above; if you can simultaneously cut back on construction costs and the amount of time each project takes, it stands to reason you will make more money on every flip. Its worth noting, however, that improvements can’t be made unless you are tracking them, so don’t wait any longer — start tracking valuable KPIs today.

Are you aware of any real estate business owner KPIs that are more valuable? Perhaps you would rather track entirely different KPIs? Whatever the case may be, feel free to let us know in the comments below.