In the investing world, whether real estate, stocks, whatever, everyone looks at their Return on Investment (ROI). And it varies based on risk assumed.
Stocks, over the long haul, might be 8-10%. Maybe more if you bought in early on a now-awesome company or two. Real estate varies even more. The idea of return on investment is this – how quickly you get back the money you put in. That’s the ROI. In the real estate world, there’s a difference between ROI and cash-on-cash ROI. ROI looks at the total return on your investment, analyzing the real estate trifecta (noted HERE) of cash flow, debt paydown, and appreciation.
Talking to investor friends and clients, some are happy with an ROI of 10%. Most want 15% on rental property. We at SRG don’t look too much at total ROI. It’s a cool number, but it doesn’t immediately impact your life. We like to simplify things by looking at cash in versus cash out, much like investing in stocks might be.
As an example, our triplex cash in was $36,000. Our annual cash flow is $900/unit/month or $10,800 per year. Meaning our cash-on-cash ROI is 30%. We’ll have our $36,000 back in a little over three years. AND you still own the physical asset that now may be worth a bit more and you owe a bit less. Show me a stock that does that!
You know what’s crazy?
The BRRR strategy, coined by Brandon Turner, author and host of Biggerpockets’ podcast. You can have infinite returns on your money with that. It's definitely worth checking out!