What does High Yield mean to you?

Question

When you hear High Yield, what ballpark do you think of?  Many passive RE investors, hard money lenders, and note buyers seem to be happy with low double digit rates of return, thinking that, relative to stocks, bonds, mutual funds and annuities, mid-teens is a respectable yield.

Since we all seem to think that Robert Kiyousaki hung the moon, what does he teach?  Watch the Financial Intelligence part of the video that comes with the Cashflow 101 game from 1:40 to 2:00.  We scoff at the 80% who just spend the $10K and have nothing to show for it at the end of the year.  Likewise, we hope that we can do better than the 16% who just put the cash in the bank at 1/2% interest.  But how many investors here routinely and comfortably experience triple or quadruple digit returns on 5-figure or higher investments of their capital?

Bill Gulley · Answer

18 posts and what do we get, another day older and a pitch for RK. No, I don't think he hung the moon, LOL.

High yield is 200+ bushels per acre. Notes are at 25% and above. It's already been mentioned that it depends on the asset class which sport we go to in order to understand the park we are in. The term "high yield" is much like "Lose Weight Today" how much depends on the eye of the beholder.

I believe my mind is already high yielding, at least it has worked for me. Never read RK's book either.

Psychology here might be the under the radar pitch, we can take it to the guru review section or drop references and speak to the psychology and perceptions of investors.

We certainly have enough buzz words flying around in RE from the marketing types, it's good to point out what might trigger some to pay attention to, like "Free Beer Tomorrow".

I don't know, I'll think about it.... :)

Elizabeth Colegrove · Answer

For me its more about tong term than the actual numbers .Yes I am okay with 10-15% cash on cash but when I put a personal and put 0% down I am in the triple digits :) To me high yield is over time. It means that 14 year down the road, when our early investment are making us bank. We are retiring early and get to raise our kids on our own schedule. That's high yields.

While the home runs are amazing! It is more important to me to be building those building blocks than getting the once in a life time deal.

Daniel G. · Answer

I've always been curious about this concept of high yield. Especially as it pertains to high yield bonds as a competing opportunity for investors to pursue rather than a passive investment in a Multifamily Property. At least in my group of investors this type of security is attractive to them. Whether it's international debt, corporate bonds or the like, the higher the risk (junk bonds, BBB bond rating) the higher the yield. Which is similar to the whole "value add" play in real estate. At the end of the day an investor would evaluate the opportunity's risk when making a decision. Does anyone have any thoughts on the comparison of corporate bonds and passive roles in a multifamily property? I know the differ greatly on the distributions side of the equation. So my question pertains more to risk and opportunity cost.

Peter Tverdov · Answer

It depends on the markets your housing is in and it is very similar to stocks in my opinion. I live in NJ, so most people who buy in NJ or NY are looking at appreciation. The cap returns will very very low 5% (+/- 1-2%) but the property continues to appreciate and it isn't nearly the bubble market the rest of America is.

In other areas, the cap rates are a lot fatter (8-10%) but the appreciation isn't nearly as strong.

For me, in my particular market, I want 7-7.5% cap rate and close to 15% COC. I don't care about appreciation, I don't believe in it going forward.

Tom Cyr · Answer

The point of Kiyousaki's materials is that "rich" is not what is in your wallet, it's what between your ears.  The way you become a sophisticated investor is that you keep reaching for greater success.  Sophisticated investors can evaluate investments by the numbers.  Only the numbers matter, not the vehicle.

Becoming successful is not about getting lucky on a once in a lifetime opportunity.  It's about getting informed about what is possible and then positioning yourself to take advantage on a regular basis.  Warren Buffet looks for elephants but his portfolio is made up of regular deals.  And Berkshire Hathaway is not high yield by almost any measure.

"High" for an individual is relative to what a person's financial IQ is.  But an individual with their unique risk tolerance is mostly limited by their perceptions instead of reality.  For the  person investing in 1% CD's their perception is that 3 or 5% investments have to be too risky.  For the 90% of employees who investing all their retirement in unsecured assets on Wall Street, just because everybody else is doing it, their perception is that it must be low risk.    If you are happy with 10-15% rate of return on rental real estate, it is only because you don't realize there are much higher yields in other assets.

If you play Cashflow 101, you understand that the best deals to get you out of the rat race in general are real estate capital gains deals that you buy at 50% discount.  They help to build the capital necessary to play on the fast track.  Notice too that none of the deals on the fast track are residential real estate.  The question is, have you built a wall around yourself that keeps you in the rat race because your "investment" yields are so small, it will take decades to make any real progress?  Are opportunities outside your walls "just too good to be true"?

Casey Miles · Answer

I really like to stay around a 10% (willing to go down to 9%) on my cap rates and I like to be around 25% on my cash on cash. These are all on long term rental property holds.

Bhekizwe M. · Answer

High yield is relative to opportunity cost(other investment vehicles like money market/stocks etc). That applies to capitalization rates, cash on cash return

Duke Marquiss · Answer

To some people, 5-6% is high. Compare to what banks pay on CD's they are right.  Age makes a huge difference.  When I was 40, a 30 year mortgage didn't bother me. Now that I am nearing 70, a 2 year mortgage commitment scares me.  I no longer buy green bananas.

Long term cash flow, 15-20% for me is good.  Many fix and flips we do 100% on our money and that annuallized would be like 300%.  It doesn't quite work that way.

To someone that only makes $20,000/year, any return on an investment seems huge.  It is all in the eye of the beholder.

What does High Yield mean to you?

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