Avg ROI expectation

[Heajin Kim]

Hello Guys

I am just starting out and I have no property as of yet.

I have a question about ROI. What % of return should I expect to get?

I was thinking if i can get 10% return on cash purchase deal then I thought that would be good. However, I was going through this forum. It appears that a lot of them are expecting more than 10%.

Can anybody enlighten me what is average return in realty? I am assuming I would able to sell it for at least what I paid for in 10 or 20 years in the future.

Thanks

[Darrin Carey]

ROI is frequently abused to measure returns. Chasing a high ROI gets a lot of people in trouble. It causes people to over-leverage properties, or buy mediocre deals that only need a small down payment, all in pursuit of the highest ROI possible. As @James Sinclair said, a project with no money in it has an infinite return, but it does not mean it was a good project.

@Heajin Kim you said a 10% return on a cash purchase. That is the same as the cap rate (google cap rate if you need to), and would represent a really good return on a single family home. Many single family homes in our area have a 7-8% cap rate. In our area, you can get a better return, however that comes with other costs.

If you are buying exist turnkey rentals, an 7-9% cap rate is good. If you are buying and fixing your own, you can do much better. 12-15%+. Keep in mind, cap rates will vary depending on where you are in the country, and which neighborhood you invest in. For example, there are good deals within 10 miles of my house where the cap rate can vary from 7-15% or more depending on property type, and the neighborhood it is in.