What Return on Investment should I expect from Real Estate?

The summary from our online financial calculator is what your ROI (return on investment) is for each dollar you are putting into the investment from your pocket. What ROI should you aim for? To begin with, you will obviously want to earn more than your bank interest rate. However, all ROI have a risk associated with them. Therefore 10% ROI at the bank is not equivalent to 10% ROI from a real estate investments. The reason for this is risk adds uncertainty and volatility to your return.

What this means is the higher the risk, the less the chance you will get the ROI you calculate. It is a gamble. Consider the many risks associated with renting a home out. There is the risk of not finding a tenant, the risk of getting a bad tenant, the risk of getting sued, property damage risks, property value appreciation risks. The reality is there are many many risks with REI (Real Estate Investing), while there are almost no risks with money in the bank. Furthuremore there is significant work with being a landlord as well. One has to include the value of your personal time into the whole equation to make sure your ROI is enough to give you a higher salary than minimum wage at least!

So what ROI should you aim for? Personally I would not touch anything yielding less than 10-15% ROI, unless you are doing it for the experience and having absolutely nothing better you could be doing with your time and money. You will at least learn about risk, liability, landlordship, taxes, and people (i.e tenants). Such experience is invaluable in your development as a businessperson, investor and entrepreneur.

For those with some experience and time , one should aim for 15-20% ROI's. Ideally the best ROI's are 20+% as you will be able to double your investment almost every three to four years. In less than a decade you could amass quite a large fortune which will continue to grow. The more money you have, the more you will earn. 10% of 100,000 is 10k per year, but 10% of 1,000,000 is 100k per year which is ten times what you would earn if you only had 100,000 invested.

How to find and select good tenants?

The ideal tenant is one who will stay a long time, take better care of the house than you would and pays the rent on time. Finding all three of these qualities in one tenant is highly unlikely! You will however, find two of these three qualities quite easily. To be able to find the ideal tenant you will need to increase the number of prospective tenants who come to see your place. You accomplish this by advertising a lower than market-value rent. An ideal tenant paying less than market value rent is ten times better than a bad tenant paying more than market value. The old adage in real estate is No tenant is better than a a bad tenant is very sage advice!

So advertise a lower price and you will find a lot more tenants to choose from. Once you narrrow it done make sure and check their credit and references. If all looks ok, then you should be on to a successful real estate investing experience.