Expected ROIs from real estate investment company

3 Replies

If an investment company with 3-4 year positive record needs capital to purchase, flip and rent out long-term properties, I was wondering what is considered a good ROI. Homes are in the midwest ($50-100k ARV). In each deal, the investor will have first lien position and a guarantee from the company for the principle investment.

What amount of annualized ROI is considered good for

1) Class A buy-and-hold investments?

2) Class B buy-and-hold investments?

3) Class C buy-and-hold investments?

4) Financing fix-and-flip? Essentially a hard-money loan (out the door w/ points).

5) Should there be any financial consideration given if I do not select a particular deal and just let the investment company hold the money to bank roll any deals they need to (i.e. 1-3% higher ROI)?

Appreciate any insight.  I read mixed opinions scattered across BP blogs.

Updated about 3 years ago

Additionally, should any consideration be given if they guarantee a rate of return, safer bet, so investor would be willing to take (i.e. 1-3% less ROI)?

Personally, it is an analysis of risk vs reward while considering alternative investment.

1. If I am not guaranteed over 4-6% ROI, I would invest elsewhere. Low-risk mutual funds would give me that return without ever signing contracts or seeing additional risk.

2. If the ROI is too high for YOU, then the deal still doesn't make since. Rather than guarantee 20% ROI (or whatever is the max YOU would be willing to give up), you could use hard-money or bank funding.

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So then take that scale (4-20% for example) and apply it with regards to risk.

6-8% for Class A

8-12% for Class B

etc.

YES. to #5

And, a formal/contractual guarantee of a return would definitely allow for a slightly lower ROI scale.

Thanks @Josh Autery   for the feedback.  There is a big spread of acceptable ROIs posted on BP.  Hard to see what the average investor expects in return.

Would be really awesome if BP could survey its members and provide some statistics (averages, standard deviations, etc...) on a variety of areas (i.e. ROIs, hard money, etc...).

What do you think @Joshua Dorkin  

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