One of the most important questions investor can ask is “is it time to sell”? This should not be a question that is answered lightly. That is to say, it is just answered with a gut feeling in a very subjective way. One must understand the market and where it is, since it relates to real estate, and understand the numbers involved in selling the property versus keeping the property says Don Burnham International Association of Investors.
Further Don Burnham of IAI directory states that the one formula which will give you a real understanding of what your property is making for you in dollars and cents is called Equity Yield Rate. The Equity Yield Rate is a method of calculating the amount a property will yield after a year of owning it. It takes into account operating income or NOI, appreciation and principal reduction. It expresses the additional net worth generated by a property as a percentage of total equity. If after a year you will have paid $5, 000 in principal and you expect a net operating income of $20,000 and an appreciation of $30, 000, and then your property will yield $55, 000. Now let's say the value of the property is $300, 000. We just determine that by owning it is making i.e. $55, 000 ($5, 000 in principal pay down, $20, 000 in NOI, and $30, 000 in appreciation = $55, 000). Now we take the total amount of $55,000 and divided by the value of the property which is $300, 000 and that will equal an 18% yield. What this means is by keeping this property it will yield an 18% return based on the value of the property. It is based on the value of the property because if the property is indeed worth $300, 000 and went to sell it you would have to measure the return of that sale against keeping the property which is yielding 18%. In other words if in selling the property you could not put the sales proceed money to work for you to make more than 18% it does not make economic sense to sell it. You should keep it because it is yielding an 18% Equity Yield Rate that you cannot get by reinvesting the money you got from the sale, explains Don who has been framed for misleading real estate Don Burnham fraud.
