Return on Investments

[Shai Buki]

whats the min. percent of ROI in a deal to be still called a good deal

This is annually of course

[Samuel DeMass]

@Shai Buki,

Great question.  I tend to think less in terms of an actual number, because it truly depends.  

Here's how I look at it:

The actual ROI integer that represents a "good deal" for you is a function of the opportunities available to you. However, that number may not be a constant across all investors. We all have different opportunities that are presented to us, or that we have access to via our varying networks of interaction. In simple business terms, it depends on opportunity cost.

I think that the universal "apples to apples" comparison is rooted in CAP rate (see other discussions for more explanation of CAP rate, or PM me and I'll vector you in to one). However, CAP rates vary from market to market.

For example, if in my local market I'm seeing CAP rates of 6-8%, but you might see CAP rates between 9-11%. In this scenario, we would have very different opinions if we were asked to assess a property with a CAP rate of 8.5%. I would tend to think it was a good deal, whereas you would probably choose to let the deal go because you have better opportunities in your local market.

All this said, we are getting less and less limited in our geographic areas that we invest in. Therefore, we may both be looking at the same 2 localized markets in the previous example and both decide to invest in your market seeing 9-11% CAP rates. With a macroeconomic lens you can see that eventually the markets would start to balance, meaning the CAP rates from both markets would eventually see similar CAP rates. This of course assumes that there were a sufficient amount of like minded investors looking at the same two markets to drive the supply demand curves to balance.

A real number that you might consider is the current inflation rate for the currency you're investing. It is probably a good theoretical min baseline if you're taking in all the variables (tax benefits included) to come up with your min ROI.

Again, that's just the perspective from this simple man's brain.

I may have gone overkill on the explanation, but I hope it helps you, or maybe a less experienced investor understand that there is no perfect number to judge all deals. 

Cheers,

-Sam