What is a good non-passive investment ROI for you?

[gyrelyre]

I'm more of a boglehead, so for passive income investments (i.e. etfs, real estate, etc.) anything above 7-8% in annual returns is already good news for me. I wanted to further diversify and look for bigger returns so I started looking into businesses to start. I've always been curious about coin laundries so I looked into a franchise website for research. The site "boasts" an estimated ROI of 10%. Even pretending that 10% is a good approximation and not sales talk, is 10% ROI really something to advertise? Why engage in a business and spend your own time(maybe semi-full time?) that gives you back only 3-4% higher returns than investing in the market? Not to mention your startup costs are very high (They estimated 40-50 million yen total)

I don't know if you can make an argument that it will have more consistent returns than an ETF in a short span since it would also be affected by market forces and the 10% could also be a 5% or negative on some years.

So in Japan, do you think an ROI of 10% for a non-fully passive business a good approximation of what to expect?

 

[bluesky2023]

@gyrelyre Opening a business is the opposite diversifying

 

[gyrelyre]

@bluesky2023 How about "diversifying my ROI rates?" LOL. I understand what you are saying though I wouldn't say its the opposite. I may be investing equally on the US, Developed, developing, Japan, and then the very local neighborhood market (my business), and that would be more diversified than if I did not go into business.

 

[bluesky2023]

@gyrelyre If you put say 25% of your investment into one shop rather than the world market it is definitely the opposite of diversifying. But yeah, it could diversify your rate of return significantly in either direction.

 

[zinga327]

@gyrelyre I think you need to look at risk adjusted returns (RAR) rather than ROI in isolation. A 10% ROI can come with its own set of different risks and may not be directly comparable against another avenue giving 8% returns but at significantly lower risks (irrespective of passive vs active). As others have pointed out, with leverage you can get higher ROEs at the same ROI, and ROE is what will drive money in your pocket.

For coin laundries, it mostly makes sense only when coupled with tax avoidance strategies, where one can reduce tax at high marginal rates and channel that money into business such as coin laundry. In these cases even with low RAR, the investment might still work out better compared against the scenario of paying taxes at high marginal rate and investing the remainder in high RAR (e.g. ETF with ~8% returns).

Most of the investment heavy businesses (where manual labor input does not create a big differentiation or value add), tend to be single digit returns (personally I have seen a wide range of 3-8%). However areas such as real estate can provide temporary inefficient markets, where you could potentially find somewhat higher ROI opportunities by being active full time and seeking them out. For example I have heard stories about people buying old apartments, renovating, renting out and flipping for a return in the teens (although I doubt this is something one can consistently do). But this will be against the diversification that you want and pretty much becomes a full time business.

 

[eterna]

@gyrelyre Active consume free time, a rare commodity that I would rather keep.

Significant returns would need a high % of my savings to really make a difference in outcome, so stress generated would be high.

It is not realistic as a strategy for me, except for fun in negligible quantities.

If I were in a position to massively invest actively in high risk venture, I'd probably try to run my own company. But this is not the life path I choose.

 

[invisiblegirl]

@gyrelyre A serious answer here - 2% above inflation is a solid return. As soon as you start seeking more, recognise that greed is kicking in - this on its own is fine if you recognise jt. The way to get higher returns is to gamble - and if that’s the case, gamble on yourself by going all out and investing in yourself whichever direction that takes you.

 

[kitten3660]

@gyrelyre For the coin laundry investment, you usually finance it with a loan so you don’t have to put much money down.
Same for real estate and solar investments. So it’s not like you have to put the 50M JPY down and now can no longer invest them in stocks etc. it’s money that you otherwise wouldn’t have at all. So even a “low” ROI is good. It’s about ROE, not ROI in those cases.
Also, some of it can be very hands off so you don’t have to invest much time.

I have looked into coin laundries too but have been told by friends who are experienced with all types of investments that coin laundries are very high risk.
Solar investments are probably better.

Also, keep in mind that with some of those investment methods you get tax breaks.

 

[gyrelyre]

@kitten3660 Thanks. I couldn't imagine it as hands off, but I guess after a few months the manual work becomes automatic and streamlined. Good point about the loan, though that decreases your ROI further, at least for the early half of the loan period.

 

[kitten3660]

@gyrelyre You can outsource the actual day to day operations. It’s a trade off between your time and your money obviously. The same as for real estate.

It does reduce your ROI further but it’s money you wouldn’t otherwise have anyway.