#AskBP 024: What is a Good Return on Investment (ROI) to Look for When Investing in Rental Properties?

by | BiggerPockets.com

10%? 15%? 20%? We can talk about finding good deals all day long, but what does that even mean? That’s the question Brandon dives into today on this episode of the #AskBP Podcast! You’ll learn how to calculate ROI and why a simple “cash on cash” ROI might not be enough to give you an answer. Stay tuned!

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About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.


  1. John Bierly

    Sorry Brandon, Dave Ramsey is a widely viewed as a charlatan in the world of paper investments and has never been able to back up his claim of 12%. If you want to be credible, please don’t quote Dave Ramsey. Serious academic studies of the markets over the past hundred years show a range of 7 to 9% returns, not the 7 to 12% cited – which makes for a better case for Real Estate.

    • Michael Morton

      Hey John – I believe that the S&P 500 has compounded at about 9-10% for the past 100 years. And if you go into value or small stocks, you would have gotten closer to 10-12%. That’s my understanding from listening to a lot of investing podcasts by Paul Merriman (http://paulmerriman.com). I haven’t done the research myself to see if that’s true or not. Just pointing it out.

      • John Bierly

        See http://www.moneychimp.com/features/market_cagr.htm for a calculator that lets you find both the average and the CAGR for any date range you choose. For the S&P 500 the inflation adjusted CAGR for the past 100 years is 6.76% and the raw average is 8.74%. You have to use inflation adjusted results to compare to real estate as rents in real estate scale over time at more or less the inflation rate. So, I’m going to stick with my statement of 7-9% as being reflective of market returns over the long haul. If you really believe you can do significantly better and get a 9-12% return on stocks then you shouldn’t be hanging out on a real estate website – the few points of additional return that you get from RE probably wouldn’t be worth the loss of liquidity and the added time needed to manage even a passive RE investment. However, IMHO, the equity/RE return on investment spread is more like the difference between an 7% CAGR and a 15% IRR – that is why I’m here.

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