Revised Question on ROI
To simplify a previous question I asked, in hypothetical terms, if I were to completely self fund a project, no financing or raising at all, lets say a $10m project, what would my ROI multiple be?  Obvious they are all different, but what is the high and low range for a land development deal?
[{"id": "coi547g", "text": "I guess I would need to see your previous question, because this one isn't making sense to me. You're asking a math problem that cannot be calculated with just the info you've given here. \n\nIt's like if I asked you, \"If I received $8.40 in change from the grocery store, how many oranges did I buy?\"\n\nFor an accurate answer, you'd need to know how much oranges cost and how much money I gave the cashier before you could calculate the answer. \n\nAll we know with this is that you're putting up $10 million for land development. We do not know what the cost basis is, whether it will be a cash flow or equity increase project, etc. so how can the question be answered at all?", "replies": [{"id": "coi5scz", "text": "I think he is asking what a typical developer would expect to do that deal.  \n\nIE if you had $8.40 and went to a typical grocery how many oranges could you buy?\n\nAt least thats how I took it, and I don't know the answer so this is all I got ;)", "replies": [{"id": "coi60a9", "text": "Still the same, though. Too many variables to answer. \n\nThe costs of infrastructure, ground prep, construction, nature of the project, and exit strategy all affect the return on an investment.\n\nIf he's asking what sort of capitalization rate investors look for, that's a little easier, but again, varies a lot. I look for a 12% capitalization rate on any investment I make, but many investors are satisfied with 6-8%/ ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "coi7o1d", "text": "For a ground up development that we planned on holding, my company won't do a deal for less than an unlevered ROI of 8%; however, we would definitely lever up the property to juice the returns.  When I am talking about the ROI, I just mean NOI in the first stabilized year in comparison to the development costs.  That 8% minimum is for development in core markets where the cap rates are like 5%-7%.  If we were talking about secondary or tertiary markets, the required unlevered ROI would need to be a lot higher (likely 10% - 15%).  All of the ROIs that we would accept are obviously dependent on the risks associated with the project.  There are a million factors that go into deciding on an acceptable ROI is for a project and many of them are subjective.", "replies": [{"id": "coictpu", "text": "Great insight. What market do you work in?", "replies": [{"id": "coif0q0", "text": "Northeast.  We primarily focus on value-add deals, but we have done some ground-up development.  ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "coi7t7t", "text": "If you're putting your own money into a deal, absorbing all the risk, no leverage?  I don't know an investor who would do it for less than a 20% expected overall yield.", "replies": [], "depth": 1}, {"id": "covvfgd", "text": "If you self finance you are exposing yourself to a lot of risk for minimal return.  The more you leverage with debt the better your returns.  A 100% financed deal can return 10% after 5 years.  A deal that is financed 80/20 D2E can return over 21%.  When people say that it varies it really does.  Debt is cheap, Cash is king and costs a lot more.  The example below makes a lot of assumptions that are not necessary real-world - for example a construction to perm loan and a 12 month development cycle with 100% absorption by month 13.   \n               EX 1      EX 2     EX 3\n Debt \t0%\t    20%\t80%\n Equity \t100%    80%\t20%\n\t\t\t\n\t                Example 1\t        Example 2\t        Example 3\nProject Cost\t$10,000,000\t$10,000,000\t$10,000,000\nDebt\t                          $0.00\t$2,000,000\t$8,000,000\nEquity\t        $10,000,000\t$8,000,000\t$2,000,000\n\t\t\t\nDev. Cap Rate\t          6.50%\t       6.50%\t        6.50%\n\t\t\t\nExpected NOI\t$650,000\t$650,000\t$650,000\nReserves\t        $13,000\t$13,000\t$13,000\nDebt Service\t$0.00\t$136,828\t$547,313\nNet Cash\t        $637,000\t$500,172\t$89,687\n\t\t\t\nCash Flow - Year 5 exit at 5.6% Cap Rate\t\t\nYear 0\t($10,000,000)\t($8,000,000)\t($2,000,000)\nYear 1\t$637,000\t           $500,172\t     $89,687\nYear 2\t$647,511\t           $508,425\t     $91,167\nYear 3\t$689,599\t           $541,472\t     $97,093\nYear 4\t$734,423\t           $576,668\t   $103,404\nYear 5\t$12,389,303\t   $10,451,270\t   $4,637,170\n\t\t\t\nIRR\t             10%\t                 11%\t         21%", "replies": [], "depth": 1}]