The Big Picture On a Good Real Estate ROI:

    • Investors can benefit from both cash flow through rental income and property value appreciation, balancing these for a steady or long-term investment approach.
    • Strategies like BRRRR (Buy, Rehab, Rent, Refinance, Repeat) allow investors to recoup their initial capital, making future returns theoretically unlimited.
    • While real estate often matches stock market returns, syndications can outperform, with some delivering double-digit annual returns ranging from 15-30%, showcasing real estate’s potential for high rewards.
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ROI on real estate

When people ask me about a good return on investment (ROI) for real estate, they often balk when I respond that I aim for 15–30% returns. But I’m getting ahead of myself.

There are many ways to measure ROI on real estate investments. As an investor, you should understand all of them — or at least those relevant to your investment strategy.

You should also understand how different types of real estate investments have historically performed. What is a good ROI on a rental property? On a real estate syndication investment? What about returns on real estate crowdfunding investments?

 

What Is ROI in Real Estate?

When you invest money, you expect to earn a return. In real estate, those returns come in several forms.

First and foremost, remember that you can invest by owning real estate — an equity investment — or in debt secured by real estate.

Real estate debt investments include mortgage REITs (mREITs), debt crowdfunding investments, private notes, and secured debt funds. These typically pay returns as interest, although mREITs pay a portion of their profits.

Equity real estate investments include buying rental properties directly, equity crowdfunding investments, equity REITs, and most real estate syndication investments. These usually pay both ongoing income and profits upon sale.

Investors typically measure income yield by cash-on-cash return. This calculates the annual income you collect over the total cash you invest. For example, earning $800 this year on a $10,000 investment earned a cash-on-cash return of 8%. Simple enough, right?

Properties also appreciate over time. Even as you collect cash flow, the property also rises in value. That same property that paid 8% cash-on-cash return might have also risen in value by 4% that year, for a total annual return of 12%.

 

Factors That Affect ROI in Real Estate

Here are the most significant factors that affect real estate ROI.

Factor Description
Economic Trends Economic growth, unemployment rates, and inflation impact property demand and rental yields.
Interest Rates Higher interest rates increase borrowing costs, reducing investor margins and buyer affordability.
Market Cycles Real estate markets follow cycles (boom, stagnation, decline) influencing property values and ROI.
Location Desirable locations typically yield higher ROI through increased demand and appreciation potential.
Property Management Effective management reduces vacancies and expenses, improving net income.

 

Annualized Returns

Real estate investors measure annualized returns in several ways.

Appreciation looks great on paper, but you don’t collect those profits until the property sells. So you might earn a 4–8% income yield for the first five years you own a property, then a 50% profit when it sells. How do you measure that as an annual return?

The easiest way to calculate it is with a simple average: if you earned a 60% total return (including both income and profits) on a property you owned for five years, that comes to a 12% average annual return (60% / 5 years = 12%).

But if you had collected the full 12% in returns each year, you could have reinvested that money for compounding returns. So, investors consider compounding by calculating an investment’s internal rate of return (IRR). It’s the annualized return, calculated as if you’d been able to reinvest each year’s returns along the way. The formula is complex, and you can’t do that math on the back of a napkin, so use our free IRR calculator to calculate the numbers for any investment.

Lastly, you might see that some real estate syndications offer a “preferred return.” That protects you as a passive investor by giving your returns (up to that percentage) higher priority than the general partner or sponsor. When the property sells, and profits get divvied up, you get paid out that return before the sponsor can take any returns for themselves.

For more information, read up on real estate investing terms here.

 

Infinite Returns

Deni and I love to discuss infinite returns on real estate investments, a confusing concept for many new investors.

In math, any return on a $0 investment represents an infinite return on investment. But even though buying a rental property with no money down is possible, you still have closing costs, right?

With rental properties, you can achieve infinite returns using the BRRRR method. It stands for buy, renovate, rent, refinance, repeat: you buy a fixer-upper, renovate it, and then instead of selling it as a flip, you refinance it to keep it as a rental property.

When you refinance it, you can pull your initial down payment and closing costs back out, assuming you created enough equity with your renovations. That leaves you with $0 of your money invested, even as the property generates cash flow and appreciates you over time. Those returns represent an infinite return on your $0 investment.

You can also achieve infinite returns on real estate syndications. They work the same way, simply on a larger scale: the sponsor renovates the property and refinances it, returning passive investors’ capital. As passive investors, we get our money back, but we keep our ownership interest in the property.

This model lets you keep reinvesting the same capital over and over again, letting it generate enormous returns over time.

 

Real Estate ROI Formulas

For cash-on-cash (CoC) returns, simply divide your annual income from an investment over the total amount you invested:

Cash-on-Cash Return = Annual Income / Total Cash Invested

Cash-on-cash returns are specific to you and your financing terms. If you want to calculate a property’s capitalization rate (cap rate), which ignores financing and just looks at the property’s cost, simply divide the annual net operating income (NOI) over the purchase price:

Cap Rate = Annual NOI / Purchase Price

Net operating income is the rental income minus any operating expenses such as property management fees, insurance premiums, property taxes, vacancy rate, and repairs or maintenance. It does not include debt service.

For average annual returns, you just take a mathematical average of the total returns (including both income and profits) divided by the number of years you held the property:

Average Annual Return = Total Returns / Years Owned

For example, say you invest in a passive real estate syndication with $10,000. It pays $400 in cash-on-cash returns over the first year, $500 in the second year, and $600 in the third year. At the end of three years, the sponsor sells the property, and you get $13,000 back (your original $10,000 plus $3,000 in profits). You earned $4,500 in total returns over three years for an average annual return of 15%.

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Historical Real Estate Return on Investment

The historical ROI on real estate depends on the type of investment and the location, of course.

One sweeping 145-year study of 16 industrialized countries found that rental properties paid a higher return (7.05%) than stocks (6.89%). But nowadays, most U.S. investors look for higher returns on their real estate and stock investments.

Publicly traded real estate investment trusts (REITs) also offer great historical data. From 1972–2023, REITs paid an average annual return of 11.1%. For comparison, the S&P 500 delivered an average return of 12.1% in that period.

Real estate syndications pay even higher returns, although it’s harder to find historical data on these private equity real estate investments. Still, you can look at some larger syndicators and investment platforms for returns.

Syndication marketplace CrowdStreet has hosted 777 real estate syndication deals, of which 161 have gone full cycle and sold. Investors received an average annualized return (IRR) of 18.1% on those.

In our Co-Investing Club, here are the average annualized returns of several sponsors we’ve invested with:

    • MAG Capital Partners: 19.8%
    • Bronson Equity: 28.6%
    • Wolfe Investments: 67.7%
    • Rise48: 70.5%

Those average returns include hundreds of real estate syndication deals in total.

 

What Is a Good ROI on Real Estate?

If you ask a dozen investors what a good ROI on real estate investments is, you’ll get a dozen answers. But that won’t stop me from sharing my thoughts on the matter.

 

What Is a Good ROI on a Rental Property?

According to the Federal Housing Finance Agency, annual property appreciation in the U.S. has averaged 4.7% since 2000.

As for rental cash flow, I like to see at least a 5–8% cash-on-cash return on rental properties. If you buy fractional ownership in real estate through platforms like Arrived or Ark7, you can typically expect yields in the 4–6% range.

Let’s call that a combined return in the 9–12% range.

I no longer invest in rental properties directly because those returns don’t consider your labor. Even if you hire a property manager, it still takes time and labor to find a good deal on a property, arrange an investment property loan, oversee any needed repairs, and then manage the manager. Nowadays, I only pursue passive real estate investment.

 

What Is a Good ROI on Real Estate Syndications?

In the Co-Investing Club, we look for group real estate investments on which we can expect to earn 15–30%.

Does that sound high? These investments come with some inconveniences compared to buying stocks or REITs, so I would argue that they must pay higher returns to justify them.

To begin with, real estate syndications aren’t liquid at all. Once you invest, you lock up your money for 2–7 years.

Many syndications only allow wealthy accredited investors to participate. If you’re a non-accredited investor, you must go out of your way to find sponsors who allow you to invest. (Or you can invest as part of an investment club like ours, which does the networking for you.)

However, the greatest challenge is the high minimum investment required. Most real estate syndications require a minimum investment of $50–100K. You can invest through an investment club to pool smaller amounts to reach that minimum investment; however, in our Co-Investing Club, the minimum investment per person is $5K, and together, we reach that $50–100K minimum.

 

What Is a Good ROI on Real Estate Crowdfunding?

I’ve invested in many different real estate crowdfunding platforms. While I don’t expect the returns to be as high as those of real estate syndications, I expect more convenience.

I typically expect to earn around 10% returns on long-term real estate crowdfunding investments. Since 2017, Fundrise has averaged an 8.5% annual return after stumbling a bit in 2022 and 2023. However, I expect them to recover to around 10% average returns.

On the debt side, Groundfloor loans have averaged 9.8% annual returns since its founding in 2013. Loan terms in the 6–18 month range also offer a rare short-term real estate investment. Groundfloor also offers short-term notes for periods as short as one month.

I also like Concreit as a place to hold money in the short term. It pays a lower return of around 6–6.5% interest but comes with full liquidity: you can pull your money out at any time. That makes it a great place to hold funds while waiting for longer-term real estate investment opportunities.

investment property loansWhat do lenders charge for a rental property mortgage? What credit scores and down payments do they require?

How about fix-and-flip loans?

We compare the best purchase-rehab lenders and long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

Do High Returns Mean High Risk?

Generally speaking, investments paying higher returns tend to come with higher risk. But it doesn’t always happen that way.

I don’t consider real estate syndications to have any higher risk than stock investments — yet they can pay several times the historical stock market returns. Real estate syndications, in many cases, come with less risk. An apartment complex in Dallas might dip in value by 5–10% in a downturn, but it can’t disappear entirely. It’s a physical asset that generates predictable ongoing income.

Conversely, stocks can disappear overnight, going out of business and dropping 100% in value.

So, how can real estate syndications pay higher returns if they don’t come with higher risk?

To begin with, most people have never heard of them. Even those who often don’t understand them or can’t afford to invest in them. Remember, most require a minimum investment of $50–100K if you don’t invest through a club like ours. And that says nothing about the lack of liquidity, which makes some investors nervous.

The risk of rental properties depends on your skill level. Experienced investors can reliably earn 8–15% returns on rental properties. They can accurately calculate rental cash flow before buying a property.

Inexperienced investors can lose their shirts, however. It’s one reason why we recommend that investors make a choice: stick with passive real estate investing or commit to learning active real estate investing as if it were a side hustle. If you only want to diversify your portfolio and don’t want a side business, stick with passive investing.

 

Where Real Estate Fits in Your Portfolio

Real estate and stocks complement each other in many ways.

Stocks provide liquidity, strong growth potential, and easy ways to invest through tax-sheltered accounts like 401(k)s and IRAs. It’s also easy to diversify your stock portfolio by buying index funds and other broad exchange-traded funds (ETFs), giving you instant access to thousands of stocks across the globe. Downsides include volatility and relatively low-income yields.

Real estate provides reliable passive streams of income, outstanding tax benefits, a hedge against inflation, and a low correlation to the stock market. The stock market might crash, but that doesn’t mean your real estate investments will. Downsides include a lack of liquidity, high minimum investments, and higher skill required than just investing in an index fund.

I invest in real estate as an alternative to bonds. It serves all the same purposes as bonds in my portfolio, from reliable income to stock diversification.

“But what about risk? Isn’t real estate riskier than bonds?”

Sure, government bonds have a low risk of defaults. But that’s not the only kind of risk affecting bonds. Bonds also come with interest rate risk: if interest rates go up, the value of older bonds drops. Further, bonds come with inflation risk: inflation takes a bite out of your real returns. If you bought a Treasury bond paying 2% and inflation runs at 3%, you’ve effectively lost 1% on your investment.

Real estate tends to rise proportionately with inflation. Rents are a leading driver of inflation. People pay the going rate for properties, whatever the value of the currency.

 

Final Thoughts on What is a Good ROI on Real Estate

Real estate comes with high potential returns from annual cash flow and appreciation. In my investments, I aim for 15–30% as a real estate return on investment.

Like all investments, real estate comes with risks and downsides. The high initial investment cost for rental properties and real estate syndications puts off many would-be investors. Investing in rental properties also requires skills like learning accurate ROI calculations and understanding expenses like vacancy rates and maintenance costs. Monthly cash flow is not the monthly rent minus the mortgage payment!

If you’re new to real estate investing, start with real estate crowdfunding and syndications. Check out real estate investment clubs like our Co-Investing Club to invest as a group and reduce your initial investment cost. You can spread your money among many real estate markets and property types. For example, we’ve invested in multifamily apartment buildings and mobile home parks, industrial real estate, retail properties, and self-storage facilities.

If you want to invest directly, commit to learning rental property investment as a business venture. Learn how to forecast repair costs and other annual operating costs. Learn how to analyze current market conditions, vet property management companies, and manage contractors. While it can be rewarding to invest in residential properties, it requires plenty of labor and skill.

Most of all, don’t settle for mediocre returns. If you don’t expect to earn at least 8% in average annual investment gains, you might as well just invest in the stock market and save yourself the upfront costs and headaches.

 

What kind of real estate returns do you look for when you invest? Do you invest for strong passive income or aim for higher capital gains? How do you mange risk versus returns on real estate investments? 

 

 

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