The Binding Payout Ratio is a very important part of any real estate investment. The percentage of total sales price that has to be paid out as a „return on investment“ for each sale is called the Binding Payout Ratio. For example, if you have 100 units to invest and the average value per unit is $200, you would need to pay out an average of $200 divided by 100. This means that in order to break even, you must pay out more per sale than you take in.
Unfortunately, some investors focus too much of their attention on the Fixed Payout Ratio. Fixed payment ratios are generally considered to be attractive when it comes to investing in commercial real estate properties. This is because the value of these properties typically doesn’t go down. They usually don’t fluctuate much in comparison to the overall market, so the investor can count on the value of their property staying the same for a long time.
However, as property values begin to drop, this is no longer a good idea. Instead of investing in properties where the value will eventually drop below the „sale value“, focus on properties where the current market value is above the „sale value“. There are plenty of excellent commercial properties in Las Vegas that will still attract buyers at today’s prices.
Why? Because if you have a property that is worth two times the amount you invested in it, you don’t have to sell it to get to that amount. In fact, you can keep it and simply use the difference as a line of credit. With a credit line, the property owner can pay you back the amount whenever they want over the next couple of years without ever having to sell the property or worry about it being a liability.
This is just one example of why you should think twice before you invest in Las Vegas real estate. Some people will buy a property and sit on it hoping that something will happen. Then, all of a sudden, there is an incredible jackpot waiting for them. Of course, what occurs with these investors is that they usually end up losing their entire investment when the market improves and they suddenly see their property values increase. It happens because they sold before the market bottomed out, but if you wait you may be able to sell for more than you paid. A smart investor avoids this trap by always knowing what the „real“ value of their investment is.
As stated above, the binding payout ratio is also very important in Las Vegas real estate investing. One of the reasons for this is that you must have a minimum payment on your properties each month. Otherwise, if the market drops, you will lose all of your profits from interest. This means that the „market value“ of your property may have dropped since the last time you sold a unit. Therefore, if you have your minimum monthly payment on time, you will never have to worry about losing any money from your properties.
If you are planning on being successful in the market, the binding payout ratio is a vital piece of information that you need to know. It is important because this is how you calculate your profit and loss statements. The payout ratio tells you how much of your profit goes to your investment and how much goes to your rent and other monthly expenses. Many investors do not take into account this because they believe that the property will „take care of itself“.
However, just because a property is „self-sustaining“ does not mean that it will stay that way forever. In fact, as soon as you start collecting rent, you will need to either evict your tenant’s or renegotiate your terms with them in order to stay in business. Therefore, you need to have the correct knowledge so that you can make these necessary changes to stay in business. Therefore, you need to make sure that you are keeping up to date with the binding payout ratio information.