Payout ratio is the percentage of a property's net
income that is paid out to investors in the form of dividends. It is calculated by dividing the total
dividends paid out by the property's net income.
A higher payout ratio indicates that investors are receiving a larger portion of the property's
profits, which can be attractive to investors who are looking for income. However, a higher payout ratio can also mean that the property is not retaining as much of its profits, which can limit its ability to grow in value over time.
Here are some of the applications of payout ratio in property investment:
Compare properties: Investors can use payout ratio to compare different properties and identify those that are paying out a higher percentage of their profits to investors.
Make investment decisions: Investors can use payout ratio to make investment decisions. For example, an
investor may decide to invest in a property with a higher payout ratio in order to receive a higher income.
Monitor performance: Investors can use payout ratio to monitor the performance of their property investments. A decline in payout ratio may indicate that the property is becoming less profitable, which may prompt the investor to take action, such as selling the property or refinancing the mortgage.