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What is a Risk-free Rate of Return?

One way of evaluating risk is to compare the projected returns with the risk-free rate of return. Ok, so what is it?

The risk-free rate of return is the interest rate that an investor would expect to earn on an investment with zero risk. It's a theoretical concept because all investments have some degree of risk. However, it can be useful for investors to know the minimum return they can expect without increasing risk.

Basically it’s the rate you can expect if you invest in a ten-year treasury note. Bear in mind this is not completely without risk because your returns may not outpace inflation. 

How to use it: As of this writing the current return on a 10 year treasury is 3.66% Supposed you are offered a chance to work hard on a flip project to possibly make a 6% return? Many would not consider this worth the risk. It’s part of comparing everything with everything.

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Here’s a small taste of what’s available in the Flipping America Buyers Club.

• 948 North State Street,Marion, OH 43302, 28k, potential seller finance

• 534 25th StreetGulfport, MS 39507, 146k, potential flip (350k+ ARV)

• 5 properties in Montgomery AL. They rent for from 700-900/month. At least three are rented. You can get them now for $29,000 each.