Investment approach
Project Return vs Investor Return: Why the Numbers Differ
A project can earn 20% while the investor receives 10%: DNPI's fee of 50% of profit sits between the two. I walk through DNPI's fee of 50% of profit and the contractual 10% per project, and a worked example shows it is not an annual rate.
Project return and investor return differ because DNPI's fee, costs, taxes and time sit between the property's profit and the investor's money. In the DNPI Capital scheme, DNPI's fee is 50% of project profit and the other half stays with the investor; if the investor's return over the whole project after the fee comes out below the contractual 10%, DNPI tops it up out of its own fee, within the limits of the contract. A worked example below shows where the difference comes from.
How the two metrics differ
Project return measures the property's profit against the costs of the project. Investor return measures what reached the investor after the split, against the investor's capital.
| Project | Investor | |
|---|---|---|
| Numerator | Project profit | Investor's half after DNPI's fee |
| Base | All project costs | Investor's capital |
| What sits between | DNPI's fee of 50% of profit, contract terms | Taxes by the investor's status, costs outside the project |
| Period | Whole project term | Whole project term |
If you compare numbers from different columns, you get confusion. That is where disappointment grows from, such as "the project made 20% and I received 10%".
How DNPI's 50% fee and the contractual 10% work
Project profit is split between the investor and DNPI Capital in half. If the investor's return over the whole project after the split comes out below the contractual 10%, DNPI pays compensation out of its own fee. The terms, the calculation base and the limits are set by the contract for the specific project. This is not a guarantee of capital.
Worked example, not a forecast. A project with total costs of €500,000 earned a profit of €100,000: project return is 20%. The investor gets half, €50,000. In the simplified example the investor put in all the capital, so the investor's return is 10% (50,000 / 500,000). The half is taken from the profit, not from the sale price: the /methodology page describes the split the same way. In the calculator on the site, the investor funds all costs up to the sale, and the base for the project percentage and the investor percentage is the same, so with DNPI's fee of 50% of profit the investor's return is exactly half the project's.
A second, weaker scenario. Project profit is €60,000 on the same €500,000: project return is 12%. Half, €30,000, gives the investor 6%. That is €20,000 short of the contractual 10%. This is an arithmetic gap in a worked model. Whether compensation will be paid, in what amount and up to what limit is determined by the project contract, and the source of the payment is limited to DNPI's fee. In the calculator on the site, the contractual compensation is not included in the calculation, and in case of a loss the DNPI fee is taken as zero and the loss falls on the investor's capital.
You can enter your own figures in the investor calculator, and the general method of calculation is described on the /methodology page.
Why 10% per project is not 10% a year
The contractual 10% refers to the whole project, not to a year. The longer the project, the less this is in annual terms.
| Project term | 10% per project, annualised | 20% per project, annualised |
|---|---|---|
| 1 year | 10.0% | 20.0% |
| 2 years | 4.9% | 9.5% |
| 3 years | 3.2% | 6.3% |
The completed Sitges project took two years. Over that term, 10% per project equals about 4.9% a year (this is an example of conversion, not the investor's result on Sitges). Converting to an annual rate is a convention: it assumes the result can be repeated, and with interim cash flows it requires assumptions about reinvestment (see Ludovic Phalippou's analysis on the CFA Institute Research and Policy Center blog, 8 November 2024). That is why results are compared on one scale, for example through the investor's IRR and equity multiple.
What else separates the two numbers
The investor's taxes depend on status: resident or non-resident, individual or company. They are calculated separately, and the question goes to an asesor fiscal (tax adviser). Transfer fees and currency conversion, if you invest in a currency other than the euro, also reduce the result. Other costs that were not in the project estimate fall on the same profit.
The DNPI Capital cases show the difference between the sale price and costs. For the Sitges project it was €230,750, for Compte de Urgel €233,770. The difference is the sale minus the purchase and the stated costs (Sitges: purchase €509,250, permits and licences €20,000, sale €760,000; Compte de Urgel: purchase €410,000, renovation €76,230, sale €720,000). Taxes, financing, closing and other costs are not included; this is not net profit and not the investor's return. Past results do not guarantee future ones.
What to ask in the contract
The terms of a project are read clause by clause. Questions to put to the contract before signing:
- Which costs go into the base for calculating the contractual 10%, and which are deducted before the profit is split.
- Which clause sets the limit of the compensation, and from which part of the fee it is paid.
- As of what date the result "for the whole project" is calculated.
- Who bears costs outside the estimate.
- How taxes and transfer fees in your jurisdiction affect the final amount.
It is convenient to check the base against the investor's digital account: it shows the budget and the status of the works, that is, the costs from which the calculation is built.
Who this model does not suit
Those who need regular annual income: here the result appears at the sale. Those who expect capital to be protected by default: compensation comes from DNPI's fee and is limited by the contract. And those who are not ready for the money to be tied up until the property is sold.
Questions and answers
Are project return and investor return the same thing?
No. The first is calculated on the project's costs, the second on the investor's capital and after DNPI's fee. In our example, 20% and 10% describe the same project.
Is the contractual 10% a yearly figure?
No, it is the return for the whole project. Over a two-year term, such a 10% equals about 4.9% a year.
What happens if the project earns less than expected?
If the investor's return after the split is below the contractual 10%, DNPI pays compensation out of its own fee. The amount and limits are set by the project contract. If there is no profit at all, capital may be at risk: this is not a guarantee of capital.
How is DNPI's fee calculated?
As 50% of project profit; the other half stays with the investor. From the example: a profit of €100,000 gives the investor €50,000.
