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Surplus productivity is a term used in real estate to describe the net income that a property generates after all the costs of labor, capital, and management have been paid. It's the income that's left over after all the expenses have been accounted for.
For example, if a commercial property generates $100,000 in income each year, but the costs of labor, capital, and management total $80,000, the surplus productivity of the property is $20,000. This is the income that's left over after all the expenses have been paid.
"A Deep Dive for Real Estate Appraisers"
A few additional things you should know about surplus productivity:
- It's an important measure of a property's value: Surplus productivity is often used by real estate appraisers and investors to determine the value of a property. A property with a high surplus productivity is generally considered more valuable than one with a low surplus productivity.
- It can be influenced by many factors: Surplus productivity can be affected by factors such as the location of the property, the condition of the property, the rental rates, and the expenses associated with the property.
- It can be improved: Property owners can increase the surplus productivity of their property by reducing expenses, increasing rental rates, or improving the condition of the property.
- It's not the same as cash flow: Surplus productivity only takes into account the net income of a property, after expenses have been paid. It does not take into account any financing or debt service costs, which are included in a property's cash flow.
As a real estate appraiser, understanding surplus productivity is important because it's a key factor in determining the value of a property. It's important to be aware of the various factors that can influence surplus productivity and to consider ways to improve it when valuing a property.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
Surplus productivity, it's what's left over,
After expenses take their cover.
It's the net income of a property,
That's left for you to see.