March 1, 2023
Read Time: 5 minutes
Everybody loves return metrics, right? It’s always great to see the profitability of your hard work. Let’s talk about the most important return metrics in real estate investing.
No, it’s not your ROI, it’s not your cash-on-cash return, not IRR… you don’t need any of those. The most important return metrics are those that you’ve probably never heard before.
Here’s your first return metric…
ROT – Return On Time
We once did a deal where we didn’t negotiate the partnership split very well… but you live and learn. And in the end, we really didn’t make a ton of money. But that’s okay. We’re operators who want to play long term games with long term people. And sometimes that means sacrificing the short term transactional value of a deal for the long term value of the relationship.
And so if you’re just looking at this deal, you might not think it’s all that bad. We still made some money, and didn’t really have to put any of our own capital into… so not a bad situation.
But when you start calculating how much time and effort we put into this deal, the scales start shifting. This is where your ROT comes in.
And the concept of return on time doesn’t just apply to real estate, but everything in your life. It’s a concept that we deeply believe in.
If something isn’t worth your time, you need to find a solution to that problem. Whether that’s a more efficient method, or finding someone else to do it for you.
So start asking yourself:
How much time is this taking… and is there a higher and better use of my time?
Alright, next return metric…
ROE – Return On Energy
This metric is pretty closely related to your ROT.
But instead of asking yourself how much time something is taking, and if your time would be better spent elsewhere… This metric focuses more on your mental bandwidth.
Ask yourself how hard is this going to be? How stressed is this going to make me? How much of my bandwidth would this take up?
There might be a very attractive deal that lands on your desk, but then when you get to know the seller… you find out they’re going to be VERY difficult to work with. Well, start calculating for your ROE. Will the return on all that spent energy be worth it in the end?
And the 3rd most important metric…
ROK – Return On Karma
We make a point in prioritizing helping others, first and foremost. Our own interests, whether that be profit, knowledge, or some other resource gets put waaaay in the back.
Our goal is to walk around like Oprah and just help everybody in any way that we can.
If you go through life with this mentality, we can guarantee that it will end up benefiting you. If you put good energy out into the world, you will get good energy back at some point.
Next…
ROR – Return On Reputation
Your reputation, especially in real estate as operators, is incredibly important. And the best way to shape your reputation is to just be yourself. Unless you’re like… a bad person… then don’t do that. Be better.
But having a good reputation in the industry will certainly pay off. Here’s how it worked well for us…
About a year ago, we closed on a deal with a seller. And as we were wrapping up the deal, he came to us and said “You know, I really like you all. You do what you say, you’re cool, you’re relaxed… I want to sell you the rest of my portfolio.”
14 buildings later, and our good reputation is still paying off.
So make sure your reputation is in a place where you are seeing some returns on it.
The 5th return metric…
ROI – Return On Impact
Impact is incredibly important to us at Invictus Capital. It’s part of what separates us from other real estate investment firms.
We strive to leave a positive impact on those around us, our residents, our investors, and our employees.
A lot of investors don’t put any thought into the impact of their investments. When was the last time you thought about what kind of impact your investment is going to make, if any?
It’s great to make money… but that’s a beneficial side product. The best compensation comes from improving a community or someone’s life.
And this is especially prevalent in the asset class that we focus on. We aren’t just investing in a building, we are investing in many people’s homes.
We want to make sure that we cultivate an environment that feels like a home, managed by people who genuinely care.
So there you have it. ROT, ROE, ROR, ROK, and ROI… all of these return metrics can apply to every aspect of your life.
Hopefully this gives you a new perspective through which to look at your investments and see if you are truly maximizing your returns.
If you want to hear Dan and Anthony dive deeper into these return metrics, and hear more examples… check out this episode of Multifamily Investing Made Simple.
From YouTube This Week:
Development Is Out, Conversions Are In
Want To Dive Deeper:
1) Value-Add: Before & After
→ Anthony and Dan give a behind the scenes look at one of our more recent value-add deals, the Duluth Property. In this video, they will walk you through each of the renovations done to increase the value of the property.
2) Development Is Out, Conversions Are In
→ Last week Dan and Anthony came into the studio with their Tepid Takes on the recent news in the real estate industry. They discuss everything from Elon Musk not paying rent, to the drop in multifamily starts and the explosion of office-space conversions.
3) Stay Up To Date
The Multifamily Investing Made Simple Podcast is a weekly podcast where Dan and Anthony cover a wide range of topics revolving around the commercial real estate industry.
