Posted by Ryan (NC) on August 26, 2009 at 18:20:24:
“So in my opinion if 21% makes you happy and you the loan is properly collateralized AND your opportunity cost of capital is not higher than 21% this deal is a no-brainer. At 21% ROI you will double your money every 3.43 years, meaning that your $15,000 would grow to over $400k in 17 years should you continue investing at this same rate.”
So simple yet so powerful, Proper action = reward. Couldn’t have said it better myself Jeff!
I wanted to ask the long term investors a question about return. I have a chance to earn 21% after tax return on my real estate investments. I basically loan out 15,000, pay back is 300 a month for 120 months. I owner finance to a guy who does all the work. I just collect a note. I know the guy very well and he is good for the money. That said,does 21% seem high enough? Thanks
John
Posted by Ryan (NC) on August 25, 2009 at 19:36:36:
This is a personal issue, what is a high enough return??? I wouldn’t blink at 21% in all but the rarest of cases, it’s to low to keep me on the phone… 50% and I’ll start thinking about it… 100% and you’ve got my attention… 250%+ and we pretty much have a deal unless the risk are outa line!
On the flip side I have many investors that don’t want any of the dirt that comes along with the returns that I demand. Most of them are happy with 8-15% and tickled when I split something that gives them a higher return for taking part of the risk with me.
Relationships also play a big part of this, I did just do a deal that is earning a little less than 20% with a fellow that has paid off 11 other deals with me. I did it because I know he’ll pay it off quickly during the summer months and he put up great collateral in order for me to do the deal, if he defaults (not likely) I should be able to easily recover my money by auctioning off his primary vehicle which he put up as additional collateral.
The fact that you are questioning the deal leads me to believe that you don’t think it’s high enough. What would make YOU happy? How are you going to recover your investment if he defaults? What does he have invested in the deal that is going to make him stick around?
Posted by JeffB (MI) on August 25, 2009 at 19:44:39:
21% is an excellent ROI in my opinion, especially after-tax as you claim. In response to Ryan’s post I would agree, that as a Lonnie dealer I would not want to earn that low of a percentage, because the opportunity cost is too high, and because some amount of my time is required to earn that yield of 100% or more. After paying myself to create and service notes, my actual yield is significantly reduced.
So in my opinion if 21% makes you happy and you the loan is properly collateralized AND your opportunity cost of capital is not higher than 21% this deal is a no-brainer. At 21% ROI you will double your money every 3.43 years, meaning that your $15,000 would grow to over $400k in 17 years should you continue investing at this same rate. Sounds good to me!