Real estate & rental
Property Management ROI Calculator
Works return on investment in a management business, where won units are the asset.
Result
Simple payback, with no discounting and no financing cost. For anything large or long, money now is worth more than money later and a lender will want interest, both of which make the real return lower than this.
Get a Free Business AuditHow the calculation works
The gain produced by an investment divided by its cost, where in a management business the investment is usually business development spend or a staff hire and the gain is the recurring fee stream the new units produce. Because the stream recurs, the return should be measured over the expected relationship rather than the first year.
What moves the number
- Cost of winning a unit or an owner relationship.
- Recurring fee per unit and the expected relationship length.
- Ancillary revenue those units generate.
- Retention, which determines how much of the stream arrives.
Where this one goes wrong
Measuring acquisition against first-year revenue understates the return substantially, because a retained owner relationship produces fees for years, and that understatement is why management businesses frequently underinvest in winning business. Measure across the expected relationship. The qualification is that the figure then depends entirely on the retention assumption, so the honest version shows what happens if relationships are shorter than hoped.
Before you quote
- Measure over the expected relationship, not the first year.
- Test a shorter retention assumption.
- Include ancillary revenue from the units won.
Questions
About this calculator
Why does acquisition look unprofitable in a management business?
Because it is usually measured against first-year revenue when a retained owner relationship produces fees for years. That understatement is why management businesses frequently underinvest in winning new business.
What is the right period to measure over?
The expected relationship length, with a shorter assumption tested alongside it. The result depends heavily on retention, so showing both the expected and the pessimistic case is the honest way to present it.
Should a staff hire be evaluated this way?
It can be, where the hire enables units that could not otherwise be served. The gain is the contribution from those units rather than the revenue, and the comparison is against the fully burdened cost of the person rather than the salary.
The formula
payback = cost / (monthly gain - monthly running cost)
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How to use this calculator
- Up-front cost ($). Enter your own figure; the page starts at $12,000.
- Extra gross profit per month ($). Enter your own figure; the page starts at $1,400.
- Extra running cost per month ($). Enter your own figure; the page starts at $220.
- Period to judge it over. Enter your own figure; the page starts at 36.
The result updates as you type, so you can try a figure, see what it does to payback period, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Up-front cost | $12,000 |
| Extra gross profit per month | $1,400 |
| Extra running cost per month | $220 |
| Period to judge it over | 36 |
What comes out
| Result | Value |
|---|---|
| Payback period main result | 10.2 |
| Net gain per month | $1,180 |
| Net return over the period | $30,480 |
| Return on investment | 254% |
It pays for itself in 10.2 months and returns $30,480 over 36 months, a 254% return.
How sensitive the answer is
Holding everything else steady and changing only up-front cost, this is what happens to payback period. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Up-front cost ($) | Payback period |
|---|---|
| $6,000 | 5.1 |
| $9,000 | 7.6 |
| $12,000 example above | 10.2 |
| $18,000 | 15.3 |
| $24,000 | 20.3 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Up-front cost ($)
- A money amount, starting at $12,000.
- Extra gross profit per month ($)
- A money amount, starting at $1,400.
- Extra running cost per month ($)
- A money amount, starting at $220.
- Period to judge it over
- A number, between 0 and 240, starting at 36.
What the results tell you
| Result | What it is |
|---|---|
| Payback period | The headline result. A decimal figure. |
| Net gain per month | A money figure. |
| Net return over the period | A money figure. |
| Return on investment | A percentage. |
What is not in this number
Property figures here exclude the costs that decide whether a deal works: vacancy, maintenance, management, capital expenditure and the transaction costs at both ends. A return that looks strong before those frequently does not survive them.
Estimating is the easy part
The jobs you never hear about cost more than the ones you mis-measure. BDEVY builds the marketing, systems and automation that bring them in.