What’s a good return on investment or ROI?
This Is a question that I’m asked really, really regularly, So let me just explain
what ROI is for property investing the Clever Property Investing way.
ROI effectively is expressed as a percentage over a year for what you get in return on your money.
For example, if you put some money into a bank account or a building society, they may quote 4% interest. That means you’re going to get 4% return on your investment or your money in the banks or building society over the course of a year. So if you put £1,000 , in you’ll get 4% back over 12 months, which is £40 at the end of the year.
It’s a similar scenario for a property. If I’m going to buy a property,
I may have to find a deposit,
I may have to find some fees for solicitors,
I may have to find some funding costs
I may have to find some refurbishment costs.
I probably would have to pay stamp duty (not always)
If its not my first property if I’ve already got one property. And depending on where you are in the country depends on how much stamp
… you get the idea ..
Let’s say I’ve looked at a property for example, and I’ve had to put some money into that property when I buy it to cover some or all of those items that I’ve just mentioned.
I want to know how much is that property then going to generate me as income against that money I put in.
So what’s my return on investment (ROI) going to be?
What am I looking for as an investor and what I normally suggest to my clients is that they look for is at least. 20-25% ROI.
If I’m getting a 25% return on my investment, the money I’ve put into the business/property, into then I know if I get 25%, for example, that money will be paid back to me in four years.
If I get 33.33 %, then that’s going to take three years.
If I get 50%, it’s going to take two years, and so on.
Do you see what I mean?
When I’m looking for an investment property, that’s one of the key points or numbers I’m looking for, I want to be paid back as quickly as possible.
Now, I may not need that money which is fine. I may not need to be paid back that money quickly.
However, that is how we invest and we invest correctly, safely and properly.
We try and get 20% and above return on our investments, depending on our circumstances depends on how quickly we want that money to come back into our pot to reinvest.
ROI is one of the best indicators to use for this.