Congratulations, you have finally found one source of information that is both invaluable and easily applicable for your future investment decisions Investructor.
We have read many books, reports and various articles on investments, property investment in particular. The majority of them contain great information, some of them even give you instructions on how to implement that information. However, none of them seem to provide the missing ingredient to convert the intent of the article into the actual result. Their “how to” information is never complete, too complicated or overly simplified.
Finally, out of all our research, we have found a major deficiency in the information provided by other authors –
They do not explain properly why you would invest in the first place!
They do not explain how to measure your investments!
What is the point of investment if you do not have a very specific goal in mind? And if you do have an outcome in mind, how do you know that a particular investment will achieve your desired goal?
We hear many times that people wanting to purchase an investment property, without necessarily knowing why they are buying an investment property in the first place. We have probed for the answer only to receive blank looks, vague statements and complete incomprehension of the questions.
Ask yourself, why would you purchase an investment property?
Is it to create more wealth sometime in the future?
Is it to help you financially on a daily basis?
Is it to generate a specific return on your investment?
Is it because investment property is a better investment than shares?
Do you have answers to the above questions? If you do, how specific are those answers?
We have found that people will generally answer yes to all the above without having any specific outcome in mind.
In this report we will give you the primary tool that you will need to start answering the above questions.
That tool is the ability to measure the return on your invested funds.
If you cannot measure your return, you will never be able to achieve any of your objectives, or you will achieve them through luck and not objective, measured approach. Luck will not let you repeat your investment strategies. Luck is only good in casinos!
So how do you measure returns?
Let’s step back and discuss what is a return on your investment. When people talk about percentage returns or dollar returns on investment, they usually define these returns by time and the baseline investment.
So for example if you purchased a property for $200,000, after 1 year that property might be worth $210,000. Therefore your return on investment is $10,000 in one year or 5% in one year. This example has a specific period of time within which a return is measured.
However, when you measure a return on investment, do you need to measure the return on the whole price of the investment? When you purchase an investment property, do you purchase the property with CASH? Granted, some people in very exceptional and sometimes suspicious circumstances do buy property with cash! You would agree with us when we say that this is extremely rare. In most cases the investment property is purchased with a combination of your money and the bank’s money.
In fact, in most cases, the bank lends the majority of the purchase price – 70% to 90% of the purchase price. This means that generally you only put up your own cash as a fraction of the property price. Given that you have only invested 10% to 20% of the total purchase price, when working out the return on YOUR investment, why would you work out the return on investment based on the whole price of the property? You did not buy the property entirely with cash, therefore you don’t need to work out the return on investment on the entire price of the property.
We can provide an example of this in another field. Say you wanted to purchase an antique chest of drawers. You know that antiques go up in price with time, especially if they are properly looked after.
This particular chest of drawers cost $1,000. You did not have $1,000 so you borrowed $800 from a friend and put up the balance of $200. You made a deal with a friend that at the end of the year once you sell the piece, you will pay him $40 for the loan. At the end of the year you managed to sell the piece for $1,100, or for an extra $100. So you might think that you have made 10% return.