Other traditional asset investing

Data-Driven Decision Making for Business

Ted Kwartler

Data Dude

Investing in a vacation condo

Vacation Condos

Month Occupied Nights Avg Per Night
Jan-21 6 $53
Feb-21 12 $95
Mar-21 18 $134
Data-Driven Decision Making for Business

Money coming in

Month Occupied Nights Avg Per Night
Jan-21 6 $53
Feb-21 12 $95
Mar-21 18 $134
Data-Driven Decision Making for Business

Total money coming in

Month Occupied Nights Avg Per Night Gross Income
Jan-21 6 $53 $318
Feb-21 12 $95 $1140
Mar-21 18 $134 $2412

$$

Gross Income

  • 6 nights * $53 = 318
  • 12 nights * $95 = 1140
  • 18 nights * $134 = 2412
Data-Driven Decision Making for Business

Money going out

Fixed Cost Variable Costs Occupied Nights Total Costs
$100 $110 6 $760
$100 $95 12 $1240
$100 $85 18 $1630

$$

Fixed Cost + Variable Costs = Total Costs

  • 100 + ($110 * 6 nights occupied) = 760
  • 100 + ($95 * 12 nights occupied) = 1240
  • 100 + ($85 * 18 nights occupied) = 1630
Data-Driven Decision Making for Business

How should variable costs behave?

$$ Variable Costs per night decrease

$$ Increasing total variable costs

Data-Driven Decision Making for Business

Calculating the operating expense ratio (OER)

Month Occupied Nights Avg Per Night Gross Income Total Costs Income - Costs OER
Jan-21 6 $53 795 760 35 0.955
Feb-21 12 $95 1,140 1,240 -100 1.087
Mar-21 18 $134 2,412 1,630 782 0.675

$$

Operating Expense Ratio: Total Costs / Gross Income

  • 760 / 795 = 0.955
  • 1240 / 1140 = 1.087
  • 1630 / 2412 = 0.675
Data-Driven Decision Making for Business

Summarizing OER

Month   Occupied Nights Avg Per Night Gross Income Total Costs Income - Costs OER
Jan-21 6 $53 795 760 35 0.955
Feb-21 12 $95 1,140 1,240 -100 1.087
Mar-21 18 $134 2,412 1,630 782 0.675
  1. OER = (0.955,1.087,0.675)
  2. Weights:
    • (6 Jan nights / 36 total nights) = 0.167
    • (12 Feb nights / 36 total nights) = 0.33
    • (18 Mar nights / 36 total nights) = 0.5
  3. Weighted avg = (0.955 * 0.167) + (1.087 * 0.33) + (0.675 * 0.5) = 0.859
Data-Driven Decision Making for Business

Another investing ratio: cap rate

Month gross_income total_costs net
Jan-21 $795 760 35
Feb-21 $1140 1240 -100
Mar-21 $1340 1300 40
Apr-21 $1850 1350 500
May-21 $5000 2000 3000
Jun-21 $7000 2200 4800
... ... ... ...
Dec-21 $850 950 -100

Cap Rate: Net Income / Total Cost

  • Assume the annual net income= $20,000
net_income = ($35-100+782+...-100) =

20000
  • Assume the purchase price = $100,000
purchase_price = 100000
  • Sum annual net income / total cost of the property
cap_rate = 20000 / 100000 = .20
Data-Driven Decision Making for Business

Comparing properties

ID Beds Baths Square Feet OER Cap Rate
Property_1 2 1 750 0.86 0.2
Property_2 3 1.5 1250 1.05 0.27
Property_3 3 2 1500 0.75 0.33
Property_4 2 1.5 1100 1.23 0.11
Property_5 4 2 2000 0.68 0.13
Data-Driven Decision Making for Business

Comparing properties

ID Beds Baths Square Feet OER Cap Rate
Property_1 2 1 750 0.86 0.2
Property_2 3 1.5 1250 1.05 0.27
Property_3 3 2 1500 0.75 0.33
Property_4 2 1.5 1100 1.23 0.11
Property_5 4 2 2000 0.68 0.13

$$

  • Keep only OER < 1
Data-Driven Decision Making for Business

Comparing properties

ID Beds Baths Square Feet OER Cap Rate
Property_1 2 1 750 0.86 0.2
Property_2 3 1.5 1250 1.05 0.27
Property_3 3 2 1500 0.75 0.33
Property_4 2 1.5 1100 1.23 0.11
Property_5 4 2 2000 0.68 0.13

$$

  • Keep only OER < 1
  • Maximize cap rate
Data-Driven Decision Making for Business

Let's practice!

Data-Driven Decision Making for Business

Preparing Video For Download...