Waking Up Sleepy Equity with an Investment Value Analysis
Got Sleepy Equity? What is your current Rate of Return on Equity?
Sleepy Equity is equity you have in a property that is not earning a reasonable return based on current market conditions – and it’s one of the biggest reasons why an investor should consider restructuring their financing or selling a property.
Every year you keep a property, you are, in a sense, re-buying it. If you didn’t own this property would you buy it now? Keep in mind, as your equity increases, your Return on Equity (ROE) on the property usually declines.
Consider evaluating the properties you own every year: are there changes that could be made to the Income/Expenses/Financing that would get you a better return?
Performing an Investment Value Analysis on your properties can help you decide if you should keep or sell them: calculate your net equity, calculate your ROE, and compare that with returns you could get from alternative properties. If you could do significantly better in a different property, it probably makes sense to move your equity.
NOTE: you should evaluate your investment based upon its current equity and not the originally invested equity
Net Equity = Current Value – Transaction Costs – Loan Balance (UPB)
Annual Benefits = Cash Flow + Loan Principal Reduction
Return on Equity = Annual Benefits / Net Equity
Keep in mind, you can move sleepy equity be selling, exchanging, or refinancing your property – and always consult with your tax advisor when considering any transactions.
THE INFORMATION PROVIDED IS NOT INTENDED TO CONSTITUTE LEGAL ADVICE, ACCOUNTING ADVICE OR ANY OTHER ADVICE OF A PROFESSIONAL NATURE. THE CONTENT SHOULD NOT BE USED AS A SUBSTITUTE FOR PROFESSIONAL ADVICE. YOU SHOULD ALWAYS CONSULT YOUR OWN ATTORNEY, ACCOUNTANT OR OTHER APPLICABLE PROFESSIONAL FOR ADVICE BEFORE MAKING IMPORTANT PERSONAL OR PROFESSIONAL DECISIONS.
Questions?
Questions? Ideas? Let’s talk about elevating your business today.
