Term for when you have made back you initial investment

17 Replies

What is the Term or the acronym (you are in the black or ROI etc.) for the point in which your initial investment has been paid back and you are at 100% profit. Also what is an acceptable / average amount of time to have this take place for SFH investment, 5 years, 2 years?

Answer: Happiness.

Amount of time varies.  If you buy it right, you may be able to have 2x the equity in your property as your down payment.  In that case you have an instant 100% return.

You'll never be at 100% profit, but I think you're looking for the cash on cash return. Once you get all your cash out, you'll be dividing by zero, so your CoC is "indeterminate". Which I take to mean "really darn good."

I think of it as getting back the seed corn.  If I am forcing appreciation through improvements to the property, I'd like to get it back at 6 months when it gets (re)financed.  If I buy a turn key property, I would have to rely on appreciation, and that could be a few years.

Perhaps its called "infinite return" ?

You have made back all your cash invested and are now getting an infinite return.

Not sure if there is a specific term for this but I generally shoot for a period of 5 to 10 years in which to have all my invested capital back....

Obviously the sooner the better and with multi families I find it to be faster then single families. I have a few single families scheduled to return all my capital in ~ 7 years....

I try to avoid properties with over a 10 year payback but not to say that's a be all end all rule as if there are other big positives about the property than I will sacrifice having a longer pay back long as I am getting something else in return such as built in equity upon purchase, great cash flow huge value add opportunity Etc....

I usually look at4 metrics.. time needed to get capital out, cash on cash return, monthly cash flow as a dollar amount and price paid compared to fair market value. There are many other things to evaluate but I find myself constantly going back to these 4

thx,

Chris

My acronym for it is "WW". Stands for "woop woop!" Celebration. :)

@Chris Masons thank you that was the answer I was looking for i move about 500 detroit properties a year and i'm looking for more info to put in my emails to investors to make my emails stand out. Sounds like you know your stuff. I knew someone would say you never get back 100% of your return but in Detroit if you spend 10k on a rental and it rents for 750 a month at the end of two years it's safe to say you have made back 100% of your original investment. The whole refinance angle doesn't work in my market due to housing cost being so low nor does it work with my customers they all buy cash. I do appreciate everyones advice and insight I knew the BP community would set me straight. 

Return of capital or return of investment - compared to return on capital or return on investment

Ok, this is gonna be really bad but it sounds like you're now:  "Playing with house money."

@Anthony Smith I don't mean to quibble, but getting 100% of your initial investment back is not the same thing as 100% profit.  It's not profit at all, it's a return of principal.  Profit is what is left after all your expenses, including your return of principal, are deducted from your income.  I only mention this because you said you want your emails to stand out, and that is a mistake that some sophisticated investors might spot.  But your quick return of principal allows your investors to enjoy owning an income stream into which they have virtually no money invested.  Good luck!

I️ think you are looking for “payback period.”

If you are in an area of lower home prices and large rental pools, you will see sub 5yr payback periods. But everything depends on your strategy (cash flow, appreciation, etc) and leverage position.

On Broadway, this is called "recoupment."

return of capital

return of investment

equity multiplier

payback period

Your second question is hard to answer.  Some investors add value, refinance, and get their capital back right away and others do not.  Some investors seek cash flow, others equity appreciation, some a little bit of both.

House money!

In the casino when you are in the black, you are now playing with house money.  Just make sure you keep those chips in your pocket.  Congrats!

Originally posted by @Steve Vaughan :

House money!

In the casino when you are in the black, you are now playing with house money.  Just make sure you keep those chips in your pocket.  Congrats!

There is a casino term for that as well...to "rat-hole" those chips.  A large chip or two quietly disappears from the table into a purse or pocket...

A lot of terms thrown out there already that are probably more applicable (payback period, etc.) but another one thats used (primarily in debt instruments) is duration.

@Anthony Smith - I'm not sure the term, but it's probably close to something like "Elation" lol. It depends on the deal and area, but if you're in Detroit you can reach "elation" in 2 - 4 years. However choosing the right tenant is almost as important as the location. Severe turnover and basic disrespect of a home will drive your costs high. 

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