Evaluating Fair Return on Equity for Investments in Mexico City
Exploring the world of business investment can be both exciting and rewarding, especially when looking at vibrant markets like Mexico City. My current focus is on injecting capital into two promising ventures—a real estate project and a fitness center expansion. Both enterprises already generate profits, and I’m interested in facilitating their growth. The real estate project intends to launch new developments, while the gym plans to open an additional location.
In this scenario, let’s consider a practical example: Suppose after the second year, a company earns 10 million MXN annually. If I contribute 5 million MXN to support their expansion, what should I expect as a reasonable return on equity (ROE) given the inherent risks associated with investing in Mexico City?
- What should be the annual percentage return?
- What would be considered a fair return after 3 years? After 5 years?
- How do investors typically assess the right return on investment for private equity in this context?
- Are there specific risk factors prevalent in Mexico City that should inform my investment decisions?
I welcome insights and advice from fellow investors or anyone experienced in handling similar investment opportunities. Your expertise would be invaluable as I navigate this exciting venture. Thank you in advance for sharing your knowledge!
One Comment
Great post! Your exploration of investment opportunities in Mexico City highlights some key considerations that many investors face in burgeoning markets.
When assessing a fair return on equity (ROE), it’s crucial to take into account both the sector dynamics and the broader economic landscape. For real estate and fitness ventures in a rapidly growing city, a typical annual return could range between 15% and 25%, factoring in the robust demand for housing and health-oriented services. Over a three to five-year horizon, you might reasonably expect cumulative returns of 45% to 75%, assuming steady market conditions and successful execution of the business plans.
On your second question regarding fair returns over time, aiming for a target ROE of around 20% annually across three years would align with market standards, while in five years, a compounded annual growth rate approaching 15% or more could be favorable.
Investors often use various metrics, such as Internal Rate of Return (IRR) and Net Present Value (NPV), alongside industry benchmarks to evaluate their investments. It’s wise to compare your potential returns not just against other ventures in Mexico City, but also against international opportunities, as this will provide a clearer picture of the value proposition.
Regarding risk factors, Mexico City does present several unique challenges including political volatility, economic fluctuations, and regulatory changes. Conducting thorough due diligence—assessing both the macroeconomic environment and specific sector risks, such as competition in the real estate market and shifting consumer preferences in the fitness industry—