AskBP

#AskBP 024: What is a Good Return on Investment (ROI) to Look for When Investing in Rental Properties?

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
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What is a Good Return on Investment (ROI) to Look for When Investing in Rental Properties?

10%? 15%? 20%? We can talk about finding good deals all day long, but what does that even mean? That’s the question Brandon dives into today on this episode of the #AskBP Podcast! You’ll learn how to calculate ROI and why a simple “cash on cash” ROI might not be enough to give you an answer. Stay tuned!

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Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
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    Drew Cifrodelli Residential Real Estate Agent from Robbinsville, New Jersey
    Replied over 5 years ago
    Where is the BP Rental Property Calculator that you reference in the pod cast?
    Brandon Turner Investor from Maui, HI
    Replied over 5 years ago
    https://www.biggerpockets.com/calc 🙂 Thanks for the reminder! I’ll put that link about alos.
    John Bierly Rental Property Investor from Bainbridge Island, WA
    Replied over 5 years ago
    Sorry Brandon, Dave Ramsey is a widely viewed as a charlatan in the world of paper investments and has never been able to back up his claim of 12%. If you want to be credible, please don’t quote Dave Ramsey. Serious academic studies of the markets over the past hundred years show a range of 7 to 9% returns, not the 7 to 12% cited – which makes for a better case for Real Estate.
    Michael Morton from Harvard, Massachusetts
    Replied over 5 years ago
    Hey John – I believe that the S&P 500 has compounded at about 9-10% for the past 100 years. And if you go into value or small stocks, you would have gotten closer to 10-12%. That’s my understanding from listening to a lot of investing podcasts by Paul Merriman (http://paulmerriman.com). I haven’t done the research myself to see if that’s true or not. Just pointing it out.
    John Bierly Rental Property Investor from Bainbridge Island, WA
    Replied over 5 years ago
    See http://www.moneychimp.com/features/market_cagr.htm for a calculator that lets you find both the average and the CAGR for any date range you choose. For the S&P 500 the inflation adjusted CAGR for the past 100 years is 6.76% and the raw average is 8.74%. You have to use inflation adjusted results to compare to real estate as rents in real estate scale over time at more or less the inflation rate. So, I’m going to stick with my statement of 7-9% as being reflective of market returns over the long haul. If you really believe you can do significantly better and get a 9-12% return on stocks then you shouldn’t be hanging out on a real estate website – the few points of additional return that you get from RE probably wouldn’t be worth the loss of liquidity and the added time needed to manage even a passive RE investment. However, IMHO, the equity/RE return on investment spread is more like the difference between an 7% CAGR and a 15% IRR – that is why I’m here.