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| Why You Need Capital Growth | Pinnacle Wealth, 7/20/2003
Why capital growth is absolutely crucial if you want to build your very own
property empire.
It's a common debate in the property industry about income vs. capital growth.
Pinnacle Wealth Institute doesn't believe they are necessarily mutually exclusive.
You can generate income and capital growth if you know what you are doing.
Income is important and we will cover in the next few newsletters ways you
can generate higher income returns to help serviceability. However, to truly
grow wealthy from property investment you must have capital growth.
Wealthy investors understand the miracle of compound growth. Continuous growth
in the value of investments year after year has generated vast fortunes over
time. A comment often attributed to Albert Einstein is "compound interest
is the greatest mathematical discovery of all time." Most investors probably
don't see much difference between getting 8% per annum and 11% per annum
from their investment. While 3% per annum doesn't sound like a huge amount,
you might be staggered to find out the cumulative differences to the level
of wealth created over time.
If you invested $200,000.00 in property and received a capital growth rate
of 8% per annum (let's ignore income and expenses for this illustration to
keep it simple) it would be worth $932,191.00 after 20 years. If you managed
that investment just a little better and you could derive 11% per annum,
that investment would be worth $1,612,462.00 after twenty years. That is
a staggering $680,271.00 difference! The impact of leverage makes the difference
on the return on capital invested even more impressive. How much time would
you spend on research before making a decision if you thought you could gain
an additional $680,271.00 over twenty years? A significant amount of time
I am sure.
Even at lower growth rates, a few percent per annum difference can mean substantial
amounts of money. For instance, a $200,000.00 property would be worth $361,222.00
after twenty years with 3% capital growth. That same property would be worth
$530,660.00 after twenty years with 5% capital growth.
The other great benefit of capital growth is that you don't pay tax on the
gain until you sell. If you hold a property forever you never pay capital
gains tax. The ability to defer capital gains tax on the gains made each
year is extraordinary. This gain continues to compound each year, delivering
fortunes to those who know how to find the right investment properties.
There will be properties that will produce 2-3% per annum compound growth
above the median property price. The next generation of wealthy property
owners and investors will be those who make the right purchasing decisions
now. Pinnacle Wealth Institute has developed the Pinnacle Property Locator™
and the Pinnacle Property Investment Analyser™ to help our members find the
best investment properties. These checklists cover over 83 factors you need
to consider before buying investment property.
If you would like to learn more about these topics and anything else covered in the Pinnacle Property Masters™ click here.
Article by Damian Collins from Pinnacle Wealth Property Masters Home Study Course.
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Disclaimer: In providing investment products -
1. Moneybags Pty Ltd does not take into account the investment objectives, financial situation and particular needs of any person; and
2. Before making an investment decision on the basis of any investment products, the investor or prospective investor needs to consider, with or without the assistance of a securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or prospective investor. |
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