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bpt3 | on: Austin’s surge of new housing construction drove down rents
Can you define razor thin? Grocery stores have very small margins, as little as 1%.

Homebuilders make at least an order of magnitude more on a very expensive item.

eigen | parent | next
> Grocery stores have very small margins, as little as 1%.

Looking at the Kroger 2024 Annual report shows that they have 22.3% gross margin . they pay dividends, had a stock buy back, etc so its entirely possible that they had a very low margin but gross margin seems to be similar to a home builder.

Sales $ 147,123

Merchandise costs $113,720

Rent, Depreciation, Amortization $655

Gross profit $32,748

for a gross margin of 32.7/147 = 22%

ghufran_syed | root | parent
The net margin of around 1.5% seems more relevant: the gross margin is just the revenue minus the cost of good sold plus cost of transportation. The net margin is the money you have left after paying things like Rent, employee wages, electricity, taxes, interest on debt.
estearum | parent
Grocery stores don't require millions to billions of dollars of capital to execute each new transaction.

So it's not the margin itself but actually the spread between the margin and what investors could get by investing in alternatives. Real estate investment opportunities are often measured by their advantage (measured in fractions of a percentage, .2% advantage being considered solid) over 10 Year Treasuries or S&P 500 returns.

Real estate developers do often actually lose money, but the more salient boundary condition is whether they can get financing for a project, where they have to clear a bar well above the "just make >$0" bar.

bpt3 | root | parent
> Grocery stores don't require millions to billions of dollars of capital to execute each new transaction.

Neither do homebuilders, because homes don't cost millions to billions to build (high end custom homes can cost millions, but that's not what we're talking about here).

> So it's not the margin itself but actually the spread between the margin and what investors could get by investing in alternatives. Real estate investment opportunities are often measured by their advantage (measured in fractions of a percentage, .2% advantage being considered solid) over 10 Year Treasuries or S&P 500 returns.

Okay? So they have an advantage over alternatives, which means higher profits. And a .2% advantage is not considered solid, or meaningful in any way without a lot of missing context.

> Real estate developers do often actually lose money, but the more salient boundary condition is whether they can get financing for a project, where they have to clear a bar well above the "just make >$0" bar.

Many companies often lose money, due to incompetence or bad luck. The industry as a whole has very healthy margins.

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