| Why is property investment so powerful? |
In Australia & elsewhere over the past 50 years property has averaged 10% growth per annum.
The time that it will take for a property to double in value can be calculated using the Rule of 72.
This rule says that 72 divided by the compounding growth rate equals the number of years it will take to double in value.
This means that as a property increases at a rate of 10% that every 7.2 years the property doubles in value.
Therefore if you purchase a $250,000 investment property and hold it for 21.6 years, it will then be worth $2,000,000 (increase of $1,750,000) so you will have averaged $83,333.33 per annum profit!
Well researched properties can give even greater returns.
This example has not taken into account the effect of inflation, however it is easy to see that hardly any other investment could match the power that gearing into property can have.
If you purchased a $250,000 property using a 10% deposit and allowed 5% of the property value for purchasing and legal expenses, then you would be investing $37500.
Had you invested this same amount of money in another investment, without using the power of gearing (that can fairly safely be used with property, but is risky with many other investments like shares, due to the volatility of the share market, and the possibility of loosing all invested funds should a company you invest in go bankrupt) then in 21.6 years your investment would have grown to $300,000, an increase of $262,500, giving you an average annual profit of $12,500.
This means that you would have lost out on $70,833 per annum in profit.
Debra Lohrere is an author of several books on property investment and creating financial security. Please visit http://www.investmentpropertybooks.com
Article Source: UnArchived Articles
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