How Low Can Your Return Go?

1 Reply

As returns seems to have compressed in most markets, I thought it may be interesting to ask the following question(s) to the BP community:

1)How low can your returns go before you just withdraw from the market or seek other avenues for returns?

2)Is your market at that point already and what are you doing about it?

3)Do you think the sudden availability of more abundant funding will make still investing a good idea because you can capture the spread between the funding rate and the (much lower) return like many funds are doing now?

4) To what extend have you started to focus more on the risk mitigation side of things than return?

As an example if you can do it a spread of 5% to 6% is very healthy and can probably be achieved in today’s rate environment but it implies a return of only 10% to 11% which is not bad but may not compensate for the inherent risk. 

@Charles Worth

Charles,

1)How low can your returns go before you just withdraw from the market or seek other avenues for returns?

It depends on what you are doing. For rentals, I am still getting annualized ROIs in 12 to 20% range in all my markets. For fix and flips, I am getting no less than 24% and sometimes getting 40 to 100%. It took us couple of years, but we have developed a Community of Investor Partners that allow us to do this. Nothing to brag about. Just honest hard honest work. 

2)Is your market at that point already and what are you doing about it?

See above. 

3)Do you think the sudden availability of more abundant funding will make still investing a good idea because you can capture the spread between the funding rate and the (much lower) return like many funds are doing now?

This is the question I am most interested in seeing others answer. We are just finishing our first refinance tranche of $700K of rentals with B2R and we had to jump through hoop after hoop to get 6.5% rate of 65% LTV. But I am starting to see 4% rate for 75% LTV. The purses are really loosening up. I would like to know if others are taking advantage of these loans. It changes our cash flow for the better. Investing is still a good idea if not better.

4) To what extend have you started to focus more on the risk mitigation side of things than return?

We do both. Otherwise, it is not investing. 

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