8/7/2019 How Much is a Good Return on Investment

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How much is a good return on investment? The question seems too vague to be answered. This

blog post deals with different factors that first need to be put into mind before defining an ideal return

on investment generate from real estate investment.

Real estate investment is a big business due to promising opportunities over the last few years

in emerging economies including Singapore, Malaysia, Hong Kong, and India etc. return on investmentfrom real estate investing differs from property to property and country to country. Some countries

have stable infrastructure and strong currency due to which inflation is modest, with stable interest

rates and high ROI. There are two types of rate of returns, one is nominal and the other real.

Nominal return on investment does not take into account inflation charges. ROI of 20% might

seem too exciting and lucrative for a business investor. However behind this 20% there is a hidden rate

that is stealing away most of the income from this return. Real rate of return is always inflation adjusted

and should be the one you are looking for. With the 20% ROI in property, if the countrys inflation rate is

15%, you are just saving 5%. Your real ROI would be 5% and this is the one that you need to consider

before investment. On the other hand, a 12% return on investment might seem low, but in a country

with 3% inflation rate that translates to a 9% real inflation adjusted ROI, which obviously is higher than

5% ROI.

Inflation eats away the rate of return and should be kept in mind before investing in a country.

This is the first and basic rule that you have to look for. Invest your money in those economies with the

highest real rate ROI on real estate sector. Ideally speaking a good return on investment should be able

to cover your monthly expenses and some extra money to bank in your money. Real ROI that is at least

10% or above is very ideal and perhaps a great ROI considering into account the inflationary pressures

the economy is struggling with.

Another criterion to measure return on investment in property is to compare it with returnsgained from savings account in bank. If the inflation adjusted ROI on property exceeds that of the

savings accounts, then it is a green signal to invest in the real estate sector. With that being said, an

ideal return on investment differs from person to person with varying levels of expectations and

expenses. However the basics have been covered above regarding the factors that can influence the

return on investment. Other factors including taxation should also be kept in mind before investing. The

higher the taxation rate, the lower the ROI.

According to Warren Buffet, who is one of the worlds most respected investment leader, the

ideal ROI should be around 15% with inflation and taxes adjusted. However, the ideal return on

investment varies due to different factors that lead to such scenarios.