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Define Surplus Productivity in Real Estate
Surplus Productivity:
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.
Example:
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.