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This time, it was distributed on CONSPIRIT's official channel on YOUTUBE.Episode 52: Boost your quality of life with real estate management!I would like to send you the contents.

The topic is about leverage.

As you all know, real estate can be purchased using a loan or financing.
The word that comes up often here is "leverage."

This time, I would like to talk about how to determine whether this "leverage" is working well or not.
Let's get started!

This may be a basic question, but what does it mean when you say "leverage is working"?

Leverage literally means a lever, so when we say "leverage is working," we mean that the lever is functioning.

In other words, this is a state in which the "leverage principle" is at work, allowing large objects to be moved with minimal effort; in other words, with a minimal investment of capital, it is possible to manage an amount greater than the investment.

So, how do we measure this state of "leverage being effective"?

To sum up,

K% < FCR < CCR

If this is the case, then the leverage is working appropriately and it is said to be "positive leverage."

On the other hand, if this is reversed, it means that leverage is not working and you have swung to "negative leverage."

Let's briefly break down each indicator.

First, "K%" is also known as the loan constant, and can be thought of as the "funding rate" when purchasing real estate with a loan.

K% is the annual loan repayment amount divided by the remaining loan balance x 100

It can be calculated using the following formula.
Looking at it from another perspective, it could also be called the "yield" from the perspective of the financial institution providing the loan.

Next is "FCR." This has been covered several times on the Conspi Channel in the past, but simply put, it stands for yield.

However, the calculation formula is

NOI (Net Operating Income) ÷ Total Purchase Cost (Property Price + Expenses) x 100

Therefore, the NOI, which takes into account not only operational costs such as AD and renovation costs at the time of recruitment, but also uncollected losses and vacancy losses, is viewed as revenue, and various expenses are also factored in as initial estimates, so the general yield is a harsh yield that is quite close to reality.

And finally, CCR.
Roughly speaking, this is the yield on cash.

How much cash have you initially spent compared to the net cash flow you have left over, including loan repayments?
about it.

This can be expressed as a formula:

BTCF (Before-Tax Cash Flow) ÷ Cash at time of purchase × 100

It becomes.

This will worsen if you pay out too much cash, and if you borrow too much, which results in large repayment amounts and poor cash flow, this could also be a factor in a deterioration of your CCR.

We now have all the indicators we need to determine leverage.

I think it would be difficult to understand just by listing the explanations, so I would like to determine the leverage by calculating each indicator using actual examples...but I will get to that in the second part.

Read the second part here

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