Average ROI on rental properties?

61 Replies

I currently have a duplex that returns 22% and a triplex that is providing 14% ROI. So I guess I'm getting 18%, but that figure is just based on cashflow. I'm not including the ROI that I receive via depreciation, amortization of the loan and appreciation. So I know my I'm getting WAY more ROI... WINNING!!!!

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I definitely found some amazing deals considering the market I am in. I guess I should mention that I have the 2 family financed at 75% and the 3 family is currently financed 95%. 

Great deals are out there, but they are generally not on the MLS or if they are... you have to change something about the deal in order to make it profitable.

Yes. 10 to 12 percent total cash on cash. But frankly I consider a fair bit of that to be a sortof deferred compensation for all the work of the rehab, rather than any sort of "passive" (always a misnomer in real estate, IMO) investment return.

Is this question strictly for the satisfaction of curiosity? I ask because the "average return" can be all across as well as up and down the board. Location, type of property, amount of financing, and investor ability all play a roll. Even if you get a real average, what good is it as it has nothing to do with what you will get. Strategy also plays a toll as some invest for cash flow while others for long term appreciation.

To compare more apples to apples, you need to take financing and appreciation plays out of the equation. With that, you are going to want double digit returns on your capital if you want to scale to be financially independent.

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Cash purchase and rehab, refi to a 30 in one case and 15 in the other two (cue all of the people who will tell me why 15s never make sense, while knowing nothing of my situation.)

I have a 5.5% interest rate on the 3 fam and get 5% on the 2 fam. Both 30 year fixed.

I've posted the actual numbers for my 2 properties below. Looking at my figures it looks like I mixed things up. I actually get a 30% ROI on my 3 fam and 14% on the duplex, lol details...

Triplex:

Profit and Loss Yearly
Gross Income $27,420.00
Mortgage Payments $14,162.29
Maintenance Estimate $1,256.00
Management Fees $2,742.00
Water Utility $2,400.00
Heating Utility
Total Expenses -$20,560.29
Net Income $6,859.71

Duplex:

Profit and Loss Yearly
Gross Income $19,320.00
Mortgage Payments $9,058.22
Maintenance Estimate $872.00
Management Fees $1,932.00
Water Utility $1,800.00
Heating Utility $0.00
Total Expenses -$13,662.22
Cashflow $5,657.78

I obviously invest for Cashflow. Appreciation is for people whole who aren't willing to do the legwork in order to get the maximum ROI.

Cheers!

@Richard C.  Since you asked for it, lol I'll point out that you can make the same principal payments in a 30 as you do in a 15. The one difference is flexibility. In a 30 you have the option not to make the extra payment and in a 15 you are "required" to do so. Equity is difficult to buy more property with, whereas CASH IS KING. 

That said... if your happy with how far you've gone with your empire, then by all means pay those babies off and enjoy the additional cashflow upon completion of the loans.

Cheers to wealth creation through RE!

Will Barnard thanks for the information! Yes I am asking out of curiosity just to see what type of returns you guys are receiving. I see what you're saying though, how some people invest for the appreciation while others invest for the monthly cash flow. My question was directed mostly towards what everyone is getting/looking to get yearly for cash on cash return per property on the money invested into it (not counting appreciation) not that I was going to assume that's what I would be getting as well, or using it as a rule of thumb necessarily.

Originally posted by @Gualter Amarelo:

@Richard C. Since you asked for it, lol I'll point out that you can make the same principal payments in a 30 as you do in a 15. The one difference is flexibility. In a 30 you have the option not to make the extra payment and in a 15 you are "required" to do so. Equity is difficult to buy more property with, whereas CASH IS KING. 

That said... if your happy with how far you've gone with your empire, then by all means pay those babies off and enjoy the additional cashflow upon completion of the loans.

Cheers to wealth creation through RE!

 You see, that is just what I am talking about. There are in fact other differences. Like a full point of interest. And the fact that my credit union waived all fees on the 15. And the fact that I don't need to take a lot of cash out, I have a well-paying day jib and one a year is about all I have the time to add.

You will get a higher return on your money in lower grade properties that usually come with higher turnover, higher hassle factor, which is higher risk that you will not get paid and your property gets trashed. For these type investments, I get over 30% ROI net, no mortgage. For nicer, lower hassles, lower turnover, stable tenants, If I get 10% Net ROI I am happy. The rent is never late and the tenants don't trash your property. Anywhere in the middle of those is the sweet spot for me. The ROI is directly related to your customer base.

Originally posted by @Richard C. :
Originally posted by @Gualter Amarelo:

@Richard C. Since you asked for it, lol I'll point out that you can make the same principal payments in a 30 as you do in a 15. The one difference is flexibility. In a 30 you have the option not to make the extra payment and in a 15 you are "required" to do so. Equity is difficult to buy more property with, whereas CASH IS KING. 

That said... if your happy with how far you've gone with your empire, then by all means pay those babies off and enjoy the additional cashflow upon completion of the loans.

Cheers to wealth creation through RE!

 You see, that is just what I am talking about. There are in fact other differences. Like a full point of interest. And the fact that my credit union waived all fees on the 15. And the fact that I don't need to take a lot of cash out, I have a well-paying day jib and one a year is about all I have the time to add.

I would love to hear about your situation that has you believe that the 15 year mortgage is the better choice. I fully agree that the poster above responding to your post missed the simple fact that a 15 year comes with a lower interest rate, although 1 point difference is the maximum in this current market, typically this just a half point.

Here is my argument to just about any personal situation (and I get the fact that not everybody has the time, the means, or the ability to do this): in today's almost historic low interest rates, even the most rookie investor can find a RE investment that yields a return higher than even the highest 5% conventional intent rate, and therefore! having the 30 year and investing the extra money into other investments that yield higher returns above and beyond your interest cost is the simple concept of arbitrage. I would challenge anybody taking a 15 year amm loan to my 30 year mortgage and seeing who has more net worth at the end of the 15 year term. While they are paying down principle and owning that home in 15 years, I will have used that extra cash and invested in other properties, notes, loans, etc and come out ahead every time.

I hope you take my intended context of my post as another way to look at your situation rather than just an attempt to argue, that is not my style.

Originally posted by @Vincent Dicristo:

What would you estimate your median return on invested capital percentage annually to be between all of your rental properties?

Great post Vincent,

I think a very good return for a portfolio of solid investments should be between 15% - 20% net cashflow per year.

No appreciation included.

Thanks and have a great day.