What is ROI?
ROI measures the overall profitability of an investment. In a syndication, the term refers to the profits or gains that the investors receive on their investments. Because an asset increases in value over time, the ROI changes based on how its value and income change. Generally, the longer capital is invested, the higher the ROI becomes. Importantly, the ROI metric does not consider a time factor.
To calculate ROI, the combined total of cash flow and net proceeds is divided by the investor’s initial capital investment.
When investing in a syndication, GPs generally disclose an estimate or targeted ROI in their marketing materials. While ROI is a good metric to track, there are other metrics that give investors more valuable insight into the potential profitability of an investment or the current performance of an investment they are part of.
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