How Does Days Sales in Inventory (DSI) Apply to Real Estate?
Days Sales in Inventory: How it Applies to Real Estate
Days Sales in Inventory (DSI), which measures how long a company holds inventory before selling it, has a limited but relevant application in real estate, particularly for homebuilders, developers, and real estate investment firms dealing with unsold properties.
Application in Real Estate
- For Homebuilders & Developers: DSI indicates how quickly homes or units are sold after construction. A high DSI may signal slow sales or oversupply, while a low DSI suggests strong demand.
- For Real Estate Investment Firms: In the case of flippers or developers, DSI helps measure how efficiently properties are acquired, renovated, and sold.
- For Multifamily & Commercial Real Estate: While DSI is less commonly used, a similar concept applies to vacancy periods—how long a unit remains unoccupied before being leased.
Application of DSI to Multifamily Real Estate
To adapt Days Sales in Inventory (DSI) for multifamily leasing efficiency, we can create a Days to Lease (DTL) metric, which measures how long a unit remains vacant before being leased. This is particularly useful for tracking leasing performance across different properties or markets.
Formula for Days to Lease (DTL)
Where:
- Total Vacant Unit-Days = Sum of days each unit remains vacant before being leased.
- Total Leased Units in Period = Number of units leased within a given timeframe.
How DSI Applies to Multifamily Real Estate
- Leasing Efficiency – A lower DTL suggests strong leasing demand, while a high DTL indicates potential issues like pricing, marketing, or property desirability.
- Benchmarking Across Markets – Compare DTL for different properties, submarkets, or unit types to identify trends and inefficiencies.
- Impact on Revenue – Longer DTL leads to higher vacancy loss, reducing overall NOI (Net Operating Income).
- Advertising Effectiveness – Helps assess how well marketing and leasing strategies are performing.
Example Calculation
If a property has 5 vacant units and each took an average of 20 days to lease, then:
This means it takes an average of 20 days to lease a vacant unit.
