How Much is the Real Estate Worth?
They say the real estate industry is very profitable, but how true is it? what is the profit margin like? In any field, earnings are so important. People pump in huge amount of cash into real estate, therefore it is no surprise to look out for the profit margin. Just like corporate profitability, let’s look at the net profit margins or real estate.
Profit margin here can be seen as the net income or rental revenue. In this article, we will focus specially on public traded deals, which covers over $100 million yearly in a time frame of 10 years. As stated earlier, real estate is a profitable industry, with a high profit margin in different sectors. The office sector sees an average of 15%, while the office sector scores over 61.7% in average.
The market is getting stronger with investors trooping in. In the industrial sector, longer-term lease expiration is show to be profitable. When it comes to net profit margins, apartment and retail performance are way above others. Comparing results of many years, you will see that although all sectors don’t perform equally, real estate is profitable in general.
The retail sector seems to top others in profitability with an average profit margin of 28%. The apartment sector is doing great too, as it is just a little bit far from the retail sector in terms of profitability since it covers an average of 23%. Although profitable in its own capacity, the office sector cannot be compared with the retail and apartment sector since the difference is a bit wider, as it stands on an average of 16%. What about the industrial sector? This has the lowest profit margin when compared to the other three sectors, and it is just a bit behind the office sector with an average profit margin of 10%.
These figures are not stable and can change anytime, but you should have an insight on the profitability in the real estate sector because the differences in these figures are relatively the same most times. Some events may make these figures change, making the outcome dramatically turnaround. Some factors play a role in the difference, such as impairment charges, re-measurement gain, disposition of several assets, and loss on early extinguishment of debt, among others. Some of these factors are a one-time event, and it may be for the profit of a sector in the real estate market or for the loss.
In all these, when you use an average profit margin for a time frame, let’s say for a period of 10 years, you will find a suitable data to support your decision. Whichever property type you are investing in, no matter the real estate sector you want to put your money in, be it retail, apartment, industrial or office, the good thing here is that profit from the real estate is recurring and it is a welcome idea especially if you plan on investing in it for a long term. You will hit it big time in real estate because it is a promising sector.
