| Congratulations, you have finally found one source of | | | | Increase in price in 1 year $10,000 |
| information that is both invaluable and easily applicable | | | | Return on YOUR Investment in 1 year 25% (this is |
| for your future investment decisions. | | | | calculated by dividing the Increase in price by Your |
| We have read many books, reports and various | | | | Investment) |
| articles on investments, property investment in | | | | In both cases the property cost the same and |
| particular. The majority of them contain great | | | | increased in price the same and over the same |
| information, some of them even give you instructions | | | | period of time. However, in Example 2 the return on |
| on how to implement that information. However, | | | | investment was calculated on YOUR initial cash that |
| none of them seem to provide the missing ingredient | | | | you invested into the property. The difference is |
| to convert the intent of the article into the actual | | | | massive - 500%. |
| result. Their "how to" information is never complete, | | | | You see, in this example, the bank that lent you |
| too complicated or overly simplified. | | | | 80% of the value of the property is already receiving |
| Finally, out of all our research, we have found a | | | | a return on their investment. It is called interest. They |
| major deficiency in the information provided by other | | | | do not require you to give them a part of the |
| authors - | | | | property appreciation as well. Given this, you can not |
| They do not explain properly why you would invest | | | | count the entire value of the property in your |
| in the first place! | | | | investment return calculations. |
| They do not explain how to measure your | | | | Of course it is not as simple as that. There are other |
| investments! | | | | considerations that need to be included in the |
| What is the point of investment if you do not have a | | | | calculations to be precise but the basic idea is correct. |
| very specific goal in mind? And if you do have an | | | | If you started applying this method to calculating |
| outcome in mind, how do you know that a particular | | | | your return on investment, you will discover that |
| investment will achieve your desired goal? | | | | investment property is an extremely high yielding |
| We hear many times that people wanting to | | | | investment returning anything from 20% to 100% |
| purchase an investment property, without necessarily | | | | per year on your investment. Investment property |
| knowing why they are buying an investment | | | | rivals shares for returns and surpasses shares |
| property in the first place. We have probed for the | | | | through removing volatility and risk from your |
| answer only to receive blank looks, vague | | | | investment. |
| statements and complete incomprehension of the | | | | You have heard from so called experts that |
| questions. | | | | investment property will always underperform shares |
| Ask yourself, why would you purchase an | | | | and other investments. You have heard that the only |
| investment property? | | | | way to receive a high return on investing in property |
| Is it to create more wealth sometime in the future? | | | | is through appreciation (price growth). You have |
| Is it to help you financially on a daily basis? | | | | heard that rent does not give you a high return. You |
| Is it to generate a specific return on your | | | | have heard that you have to use Negative Gearing |
| investment? | | | | when investing in property to squeeze out any |
| Is it because investment property is a better | | | | return. Unfortunately, none of these statements are |
| investment than shares? | | | | true. |
| Do you have answers to the above questions? If | | | | Let us show you why.... |
| you do, how specific are those answers? | | | | Let's take an example property with the following |
| We have found that people will generally answer yes | | | | variables: |
| to all the above without having any specific outcome | | | | Purchasing and Investment details: |
| in mind. | | | | Purchase Price (new 2 bedroom unit) $185,000 |
| In this report we will give you the primary tool that | | | | Bank Loan - 80% $148,000 |
| you will need to start answering the above questions. | | | | Interest on Loan (Interest rate 5%) $7,400 |
| That tool is the ability to measure the return on your | | | | Your Contribution - 20% (your cash) $37,000 |
| invested funds. | | | | Cashflow details: |
| If you cannot measure your return, you will never be | | | | Rent per year (Gross) $10,140 |
| able to achieve any of your objectives, or you will | | | | Total Expenses (property management, insurance |
| achieve them through luck and not objective, | | | | etc..) $3,100 |
| measured approach. Luck will not let you repeat your | | | | Rent per year (Nett - rental income after all |
| investment strategies. Luck is only good in casinos! | | | | expenses) $7,040 |
| So how do you measure returns? | | | | Total income from tax deductions $1,960 |
| Let's step back and discuss what is a return on your | | | | Total NETT rental income plus tax deductions $9,000 |
| investment. When people talk about percentage | | | | From this example we see that your final position by |
| returns or dollar returns on investment, they usually | | | | owning this property is that you will have a $7,400 |
| define these returns by time and the baseline | | | | interest bill and about $9,000 in income. Therefore, |
| investment. | | | | you will MAKE A SURPLUS OF $1,400 PER YEAR. |
| So for example if you purchased a property for | | | | What does that mean if you work out return on |
| $200,000, after 1 year that property might be worth | | | | your investment? |
| $210,000. Therefore your return on investment is | | | | Well, you have earned $1,400 on your initial cash |
| $10,000 in one year or 5% in one year. This example | | | | investment of $37,000 (your contribution to purchase |
| has a specific period of time within which a return is | | | | the property). This represents a return on your initial |
| measured. | | | | cash investment of 3.8%. That is low you might say |
| However, when you measure a return on | | | | and we would agree with you. You forgot about one |
| investment, do you need to measure the return on | | | | thing... this property is paying you money to own it. |
| the whole price of the investment? When you | | | | You have just bought an asset that pays you from |
| purchase an investment property, do you purchase | | | | day one. |
| the property with CASH? Granted, some people in | | | | What happens to property over long term? Generally |
| very exceptional and sometimes suspicious | | | | properties go up in price. In fact, the average |
| circumstances do buy property with cash! You would | | | | increase in price recorded over the last 100 years or |
| agree with us when we say that this is extremely | | | | so is compound 7% per year. If we apply this |
| rare. In most cases the investment property is | | | | thinking to the above example, 7% increase on the |
| purchased with a combination of your money and the | | | | original purchase price of $185,000 is $12,950. |
| bank's money. | | | | Therefore to calculate the TOTAL return on your |
| In fact, in most cases, the bank lends the majority | | | | original CASH investment, you need to do the |
| of the purchase price - 70% to 90% of the purchase | | | | following..... |
| price. This means that generally you only put up your | | | | 1. Add the income from rent and tax deductions to |
| own cash as a fraction of the property price. Given | | | | the price appreciation. |
| that you have only invested 10% to 20% of the | | | | * $1,400 + $12,950 = $14,350 |
| total purchase price, when working out the return on | | | | 2. Work out the total return on your initial investment |
| YOUR investment, why would you work out the | | | | by dividing the above by your investment |
| return on investment based on the whole price of | | | | * $14,350 / $37,000 = 39% |
| the property? You did not buy the property entirely | | | | Amazing, your initial investment of $37,000 used to |
| with cash, therefore you don't need to work out the | | | | purchase this property earned you 39% return on |
| return on investment on the entire price of the | | | | YOUR MONEY in the first year. Of course, unlike |
| property. | | | | shares you are not able to cash out and take this |
| We can provide an example of this in another field. | | | | profit immediately. With property, you have to wait |
| Say you wanted to purchase an antique chest of | | | | for some time before you can cash out fully. |
| drawers. You know that antiques go up in price with | | | | To put a 39% annual return on your money in |
| time, especially if they are properly looked after. | | | | perspective, it is 10 times greater then the bank will |
| This particular chest of drawers cost $1,000. You did | | | | pay you. It is 4 times greater then professional fund |
| not have $1,000 so you borrowed $800 from a | | | | managers strive to obtain - the same ones that get |
| friend and put up the balance of $200. You made a | | | | paid millions in bonuses. It is nearly 2 times greater |
| deal with a friend that at the end of the year once | | | | then the richest man on the planet, Warren Buffet, |
| you sell the piece, you will pay him $40 for the loan. | | | | consistently makes. |
| At the end of the year you managed to sell the | | | | How does that compare to all your share |
| piece for $1,100, or for an extra $100. So you might | | | | investments or any other investment for that |
| think that you have made 10% return. | | | | matter? Where else can you buy an asset and have |
| Or $100 profit divided by the $1,000 purchase price. | | | | it pay YOU from day one and increase in price? |
| You would be wrong. What you really made was | | | | Remember property appreciates in cycles, but it |
| $100 profit less $40 that you have to give to your | | | | ALWAYS appreciates. |
| friend for the loan. That makes $60 profit to you. To | | | | This is what property professionals know and do not |
| calculate your return you need to divide YOUR $60 | | | | seem to want to explain to everyone else. Now you |
| profit by YOUR $200 investment. This means you | | | | know how to calculate real return on your money, |
| made 30%. You only calculate the return on YOUR | | | | not the bank's money. You do not have to work out |
| money and not your friend's and not on the total | | | | the return on the bank's money, the banks can do it |
| purchase price of the antique piece. | | | | themselves. You need to care only about your funds. |
| Here is an example of how your property investment | | | | So when you do the calculations right, you will find |
| will look. The numbers are purposely simplified and do | | | | that overall by purchasing the right investment |
| not take into account various expenses: | | | | property, you will make up to 100% returns on your |
| Example 1 - Return on investment based on | | | | money. In the worst case scenario you will only |
| $200,000 property purchased with an injection of | | | | make 30%. Either way, the returns are phenomenally |
| 20% of your own money. | | | | high by normal standards. |
| Purchase Price $200,000 | | | | All this can be done without any risk and in some |
| Increase in price in 1 year $10,000 | | | | cases, with absolutely guaranteed rent! |
| Return on Investment in 1 year 5% (this is calculated | | | | Now what do I do? |
| by dividing the Increase by the Purchase Price) | | | | Hopefully we have shown you that property is a |
| Example 2 - Return on investment based on | | | | remarkable investment that is hard to substitute. Not |
| $200,000 property purchased with an injection of | | | | all properties are the same and you need to watch |
| 20% of your own money. | | | | out for those that may stand empty for long periods |
| Purchase Price $200,000 | | | | or give you tiny tax deductions. |
| Your investment of 20% $40,000 | | | | |