What is the average ROI % in Real Estate?

Question

I am doing research on comparing my next investment and business potentially outside real estate.

I am trying to figure out what the average ROI is on cash invested in a RE investment. It could be a flip or buy and hold.

What ROI's have you had or seen and what is your goal ROI on cash invested in RE?

Thanks.

Will Barnard · Answer

What Jason is stating is that there is no such thing as "average ROI" for RE, particularly when you mix strategies in the comparison.

With that said, I am a rehab flipper (as is J) and we can blow that 45% annual return out of the water on rehab flips, however, we have to work hard for that. In other words, it is a fully active investment to get the high yields.

If you can get that 45% but passively or at least a lot less work than rehab flips, perhaps it is something to consider. If you need to make the most of your time, again, perhaps it is something to consider. if your time is wide open and you want to get the best returns, flipping done right will yield the highest returns in my opinion. Again, that is an active investment!

J Scott · Answer

Again, there are just too many parameters to give a meaningful answer.  If you told us what kind of investment you were looking at doing, the location, the price point, the amount of leverage you would use, the amount of experience you have, the amount of time you intend to invest, etc, I could give a better answer.

I know investors who get 6% returns and are thrilled with those (completely passive and very low risk, so it's like getting 6% from a CD or savings account).  I also know investors who get more than 50% consistently with low risk, but they put in a lot of hours, so it's not at all passive.

Also, the size of the investment is important -- it's not too tough to make 100% return in a short period of time for very small investments.  It's very difficult to make 20% return per year for very large investments.  So, that comes into play as well.

How large is the investment?  What are the risks associated with this investment?  How much of your time will it require?

Now, if you were to invest in RE instead, what type of RE do you have experience with?  In what location?

Could you leverage with one or the other or both?

Again, too many questions would need to be answered to give you a meaningful response -- and many of those questions would pertain to you specifically and wouldn't generalize to all of us.

All that said, I imagine most investments with a 45% return fall into one or more of these categories:

- High risk
- High time commitment
- High level of expertise required
- High standard deviation around that "average" return
- High chance of it being a scam

Which of those categories does it fall into, and how are you mitigating?

John Nisewonger · Answer

anything above 20% i would think is good to shoot for. Compared to stocks which average 8%, real estate flipping is the better choice.  Thats if you know what you are doing. My last flip did 39% ROI a personal best

Mike Jakobczak · Answer

Here's some numbers on some on my rentals.  Property cost are rounded.

Property 1: $35,000
Property net income:7200 
ROI:20.57%

Property 2:$45,000 
property net income:7800 
ROI:17.33%

I like to stay in the 15%  but don't mind the 20%+ deals

Justin Case · Answer

Thanks J,

Understand what you are saying.

Just looking for ROI % = net profit / net cash invested per single deal, at the end of the day.

To be to the point. I have a business opportunity that will have 45% annualized with more liquidity than RE. Trying to decide on this opportunity or invest in more real estate with the capital.

J Scott · Answer

Average?  Without limiting the scope of the type of investment (as well as the scope of the price points, the location, leverage amounts, the sub-type of investment, etc), I imagine it would be VERY difficult to come up with MEANINGFUL averages.

With buy-and-hold, in many parts of the country it shouldn't be too difficult to find 20%+ COC returns, but that's based on lots of factors, including location, leverage, experience, etc.  In other parts of the country, it's probably difficult to even break-even on buy-and-hold property.

It's also going to be very dependent on the investor's ability to find the deal.  If you're just looking at publicly-available deals (i.e., off the MLS), your average will likely be a lot lower than if you market for private deals.

How you define "ROI" is going to come into play.  For a flip, if I make 100% returns in 3 months, is it the 100% you care about or the 400% annualized returns?  Or the IRR?  Or something else?

Lastly (though probably not lastly), is how you calculate time investment -- if I put 100 hours into the deal, do I need to subtract out 100 hours worth of payment of time from my returns?  If so, how much is my 100 hours worth of time worth?  Probably not the same as someone else's 100 hours of time, so we can't even compare returns on the same deal!

What is the average ROI % in Real Estate?

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