AROI - Deceptive When Evaluating Value Add Deals

We have spoken to a lot of potential new investors recently and one thing has become very apparent.  Annualizing returns on projects absent the proper capital structure is very deceptive when comparing investments.  Many are fond of looking at project-level returns and annualizing them to provide a common frame of reference for comparing projects.  The trouble with this approach is that the cash is more likely to sit idle between projects if you annualize that 3-month project when you compare it to projects with a longer duration.  

Many people are fond of talking about the "velocity of money" and how turning projects over quickly increases their AROI.  This is fine from a ROE standpoint.  More turns with common profit margin absent leverage should yield more profit and a higher AROI.  However, make sure you account for the time the cash sits idle!  Otherwise you are comparing apples and oranges.  

JVs are often used to organize investors in real estate deals.  Some investors have trouble with letting go of control of a project and thus prefer the JV option.  The simple fact is that giving up control can often lead to a HIGHER AROI because pooled money can get better price points for projects, better staff to build enterprise value, and can generally keep the money in service more often and thus reduce the 0% real return while the cash sits idle.