Mashvisor the Real Estate Guru has become a part of the Mashvisor family. We love to give real estate investors like you the insight you may need to make decisions. Return on investment is the reason why we are back again and here now.
Return on investment is one factor that indicates if you have a good investment property within your reach.
Today, we explain to you what a return on investment is, and what is considered a good return on investment in the real estate business. Get ready for some lessons, the class is in session, and Mashvisor the Real Estate Guru is ready to go. Are you? Let’s get started.
You’re an Accountant
Real estate investors play a double life. Real estate investor by day, an accountant by, well, also day. Deep down inside of you and every other real estate investor, you are an accountant. Why? You’re a number cruncher. You take real estate performance metrics and turn them into words. You calculate and analyze and make crucial decisions. It’s funny really, you sound a lot like us.
Mashvisor is a platform that provides real estate investors like you with property analysis software. We too, crunch the numbers, provide real estate analytics, and give you a property analysis. With our numbers, you are able to gain the confidence you need to purchase that income-generating asset.
We want you to get that investment property just as much as you do, and that’s why we want to be on your team. So take Mashvisor the real estate guru’s advice and give our product a spin. That way, you won’t have to live a double life anymore.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
The Mashvisor Dictionary: Return on an Investment
To put a spin on things around here, we are going to give you a simple overview of what return on investment even is. Something easy on the eyes and flows on the tongue. This:
Note: When we say, “gain from investment” we’re referring to the proceeds obtained from the sale of the investment property of your interest.
Return on investment is measured as a percentage, so it can be easily compared with returns of other investment properties. As we mention more below, this gives you the ability to compare and contrast investments against one another as you please.
Related: How to Calculate Return on Investment in Real Estate: 5 Different Ways
Let’s Get the Breakdown of Return on Investment: The Good Stuff
Now that you got the gist of return on investment, it’s time to get personal. We’re going to take a look at some of the pros and cons of using the real estate analytic of return on investment rate. Let’s take a look.
It’s Quick
This real estate performance metric is especially convenient to measure how efficient the investment property is. You can compare it to other investment property opportunities, which is always a plus. You like to keep your options open, and the return on investment analytic allows you to do a quick comparison of the return you can expect from each.
It’s Simple
Return on investment has built quite some popularity amongst the real estate investor community. The versatility and simplicity of the real estate performance metric make it ideal to use. If you want to check out the profitability of an investment property from the surface, return on investment is your guy.
It’s A Decision Maker
Return on an investment likes to help you make decisions, just like your best friend, Mashvisor. We say that because the return on investment number speaks a lot of words. A negative return on investment rate, or noticing rental property investments with a higher return on investment rate: both indicators that help you eliminate options, or select the best suitors. There is a lot of talking going on, money talk.
So We Say ROI Gets a Thumbs Up
It helps that the calculation isn’t rocket science. We don’t like rocket science and we’re sure you don’t either. You like real estate investing. So do we. What we’re trying to say is that return on investment is one of those metrics you can simply find without wasting too many of your brain cells. Which we like because your brain cells are valuable.
Related: Return on Investment in Real Estate Investing – Mini Guide
Without Further Ado: What’s Considered a Good Return on Investment?
We know this is what you’ve been waiting for. It is now time, so let’s get down to business. The real return on investment for a decent, non-leveraged property is roughly 7% after inflation. Looking at the history of the United States, U.S. real estate markets have gone through decades of 3% inflation over the past 20 years. The rate of return seems to have stabilized at 10%.
This number alone can’t be the only indicator of a good or bad real estate investment. Factors such as property location, property type, and risks that come with investing in real estate take part in judging whether you have a winner or loser.
Riskier investments may even require a higher return on investment rate than 10%. There are some real estate investors that won’t even look into an investment property that offers them any less than 40% return on investment. Others are satisfied with the 7%-10%.
You must be realistic as a real estate investor. The fact of the matter is these days, real estate investors like you are known to use mortgages (a form of leverage) to increase that return on investment rate. Looking at the current low-interest rate economic environment, real estate investors have accepted cap rates that are substantially below what other investors could consider reasonable.
They are however being realistic and aware of their situation. Set goals that are within your reach. We understand that the sky’s the limit in real estate, but no point in setting a goal so high in the sky where your airplane can’t reach it. However, here is the bottom line: Experts have come to agree that anything above 15% is considered a good rate of return on investment.
Related: What Is a Good Rate of Return on a Real Estate Investment Property?
What’s the Next Step?
So how are you feeling about the numbers? What does this mean to you, a real estate investor? You can find yourself juggling what factors to take into account when you’re “investment property shopping.” Mashvisor is willing to help you find some of those factors, like cash on cash return, cap rate, occupancy rate, and rental income.
The return on investment analytic is a real estate performance metric you should definitely consider when you’re doing your shopping. It is always smart to get an idea of what you’ll get back when you spend your cash. Using the return on investment gives you a good idea, although not the whole picture. So go out there, get those investment properties. We’re ready, and so are you.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.