ROI or ROE? (Or a bit of both?)

A little while ago I was discussing with a Colombo architect the financial merits of a project we’d been involved with for some time.

I forget the context exactly but the guy started talking about R.O.E.

I’m not too bad with financial acronyms but hadn’t heard of it. “Return on ego!”, he explained. I liked it, and am sure that for some it’s a metric, however intangible, as significant as Return on Investment (R.O.I).

And I don’t think that’s necessarily a bad thing. Everyone has their reasons and if, for some, the chance for some dinner party boasting ranks as high as a whopping cash return, then so be it. Knowing from the outset what matters most is the important thing.

The project we were involved in was the renovation of a slightly unlovely but stunningly located building about an hour from Kandy. Our architect had suggested (or at least raised the notion of) lifting up the roof and sloping it away from the front to give the whole façade a cleaner, less gutter-clad look. We loved the idea but the cost of doing it would have nearly doubled the budget. The R.O.E would have been stunning! The R.O.I, and it’s impossible to say with total certainty, probably not so hot.

Inevitably, the two metrics will overlap occasionally. It’s likely a property you’re eye-wateringly chuffed with will render a decent cash income and one that gives a great financial return certainly does no harm to the ego.

Beyond the ‘ego’ variation perhaps we could add ‘Return on Lifestyle’ (R.O.L.?) as an analytical measure. If the R.O.I’s great, the R.O.E’s excellent, but you’re constantly managing a stream of issues and crises then the poor R.O.L. might undermine the whole thing.

For private buyers, in fact, most often we’d say that return on lifestyle for developing a place in Sri Lanka would be very strong indeed. We get a lot of questions with regard to likely yields and value appreciation and while we can answer those (and the numbers are good), we try to remind those we work with that it’s often the lifestyle implications that are the most fantastic.

At any rate, we’d say all of the above measures have some use. To get a real impression of value, anyone spending money here should probably look at all three.