profitability formula

[Nuhan Demirkan]

Hello, I manage my own properties and they all have various cash on cash return rates and equity. I am thinking about developing a formula that considers the annual cash flow, cash invested, equity and management hours to come up with a factor or a coefficient that could be universally applied to the existing and future rentals. Has anybody seen or developed something similar?

[Matt Motil]

I have done something similar on my properties. I think this is where the whole idea of the 50% rule and the 70% rule came from. 

[Nuhan Demirkan]

What was your formula like

[J Scott]

What's wrong with a P&L and Balance Sheet?

[Nuhan Demirkan]

I do the P&L and the Balance sheet for the banks, that's given. But that doesn't account for ROI per hour worked. Plus those tools are for the properties I already own. I'm looking to apply this formula to future purchases.

[Jeff B.]

ROI per hour worked? Tax code prohibits accounting any personal time, but the concept is a 'trailing indicator' as they say in the stock market - - all after the fact and only useful to evaluate your personal effectiveness.

Stick with cash-on-cash and just smile.  Over 18yrs, I'm at $899k (aka 22+%)

[J Scott]

Originally posted by @Nuhan Demirkan:

I do the P&L and the Balance sheet for the banks, that's given. But that doesn't account for ROI per hour worked. Plus those tools are for the properties I already own. I'm looking to apply this formula to future purchases.

How much is your time worth?  Assign a value, calculate the total cost of your time and then add that as a COGS (or expense) line-item.  Now you know the profitability of the investment including your time invested.

[Nuhan Demirkan]

Thanks, that is an option. I am putting together the base line thoughts to arrive at the formula. I wanted to see if anybody had developed the idea.

By the way I bought your books. I refer to them frequently. 

Thanks for writing them.