Are You Leveraging your ROE to Multiply Your CRE Wealth?

  📍 Are you a commercial real estate investor? I’m sure you know your cash on cash and your ROI, but do you know your ROE?

Hey everybody. Joseph Gozlan with Eureka Business Group, your Retail navigator for the Dallas Fort Worth market. I talk to a lot of commercial real estate owners and they know their cash on cash, they know their return on investment,

they know all those benchmarks, but what they almost never know is their ROE. And what is ROE? ROE is return on equity, and that’s not how much you make in cashflow, and it’s not how much you invested compared to how much you are getting in returns every month. And it’s not your ROI, which is how much money you get every year in compared to how much you invested originally.

ROE is measuring your returns on how much equity is buried in that building. I’ve met shopping center owners that own seven figure eight figure shopping centers with no debt. That means when we’re looking at their annual cash flow, their NOI, that is calculated over the entire value of the shopping center.

So if I own a $10 million shopping center, free and clear, and I’m getting. A million dollars in income, that’s 10% cash on cash. That’s 10% cap rate. That’s 10% return on my equity. But if I take that shopping center and I leverage it not high, let’s say 50%, I can take $5 million and go purchase another shopping center, even at 50% equity.

Then I’ll have two $10 million shopping centers at $5 million equity that are generating cash flow. That are having tax benefits from the interest of the mortgage. Now I have more assets. I have diversification, I have, I can diversify by location. I can add another asset class to my portfolio.

I can do more with my equity than I can do with just my cash and my investment. So a lot of those investors are looking at me and they go, oh, well I never looked at it this way.

I never thought about how is my equity working for me? I have lazy money. Equity that sits in a property that doesn’t work for you is lazy money. Now, obviously there are other considerations. All right? If you’re older, you want lower risk, you want lower LTV, that’s understandable. But if you’re younger, if you’re in the 40s and even 50s of your life, you’re still young.

You still have a lot of time to get more properties to increase your family wealth. Then it’s a good time to think about your ROE versus your ROI. If you wanna talk more about investing in commercial real estate, specifically in Texas and the Dallas Fort Worth market, give me a call, shoot us an email, visit our website at bgtx.com and we’ll be happy to help!