039: Risk-Adjusted Returns in a Nutshell

We specialize in providing flexible short-term hard money and transactional loans for real estate projects. We also invest in equity of strong real estate projects with proper leverage and strong sponsors.

039: Risk-Adjusted Returns in a Nutshell

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Today, I offer you a presentation about risk-adjusted returns. Listeners have been asking me, “how do I calculate my risk-adjusted return?” Well, I will do my best to answer that question and cover how variables like investment quadrants, market conditions, and sponsors affect the calculation.

MINUTES MARKERS

00:00 — Introduction to the Big Mike Fund Podcast.

00:22 — Welcome to the show.

00:58 — How to calculate risk-adjusted returns.

01:43 — A little bit about me.

02:44 — How to learn more about my business and contact me.

03:33 — Why do we care about risk adjustment returns?

05:26 — A project must fit your portfolio.

06:32 — Understanding and identifying speculative investments.

07:30 — The pros and cons of the 4 investment quadrants.

08:57 — Quadrant one — cash flow focus.

10:05 — Quadrant two — growth focus.

10:56 — Quadrant three — Speculative grade projects.

11:30 — Quadrant four — ground-up projects.

12:00 — All projects have risk, remember that.

12:33 — The types of risk you can expect.

13:28 — How do you compute risk-adjusted return?

14:17 — The risk-versus-reward side of the capital stack.

14:53 — The pros and cons of Senior Debt.

15:43 — What are Junior Debt and preferred equity?

16:09 — The joint venture equity and common equity option.

16:48 — How do you compute loss reserves?

19:15 — Why market conditions are important.

20:37 — The stress test you can use to help your calculation.

24:39 — My opinion about losses in a normal market.

28:37 — Loss reserves for investment grade projects versus speculative projects.

30:01 — The risk level of Speculative grade projects.

31:18 — ROI expectations regarding investment quadrants.

34:22 — Cash flow expectations regarding the investment quadrants.

37:16 — What is a quality cash flow syndication or a similar fund focused on the cash flow?

41:00 — The role of a good sponsor.

42:45 — Should you invest in individual deals or funds?

45:05 — Thank you for joining me for today’s episode.

45:42 — Outro to the Big Mike Fund Podcast.

RESOURCES

The Big Mike Fund

Real Estate Investment Fund: How to Choose a SMART Real Estate Investing Fund: Top 10 Biggest Mistakes To Avoid Before Investing Into a Real Estate Fund (Private Money, REITs, Equity, Structure, Tax)