Measuring Your Real Estate Investment Returns

Congratulations, you have finally found one source of information that is both invaluable and easily applicable for your future investment decisions.

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.

Or $100 profit divided by the $1,000 purchase price. You would be wrong. What you really made was $100 profit less $40 that you have to give to your friend for the loan. That makes $60 profit to you. To calculate your return you need to divide YOUR $60 profit by YOUR $200 investment. This means you made 30%. You only calculate the return on YOUR money and not your friend's and not on the total purchase price of the antique piece.

Here is an example of how your property investment will look. The numbers are purposely simplified and do not take into account various expenses:

Example 1 - Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Increase in price in 1 year $10,000
Return on Investment in 1 year 5% (this is calculated by dividing the Increase by the Purchase Price)

Example 2 - Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Your investment of 20% $40,000
Increase in price in 1 year $10,000
Return on YOUR Investment in 1 year 25% (this is calculated by dividing the Increase in price by Your Investment)

In both cases the property cost the same and increased in price the same and over the same period of time. However, in Example 2 the return on investment was calculated on YOUR initial cash that you invested into the property. The difference is massive - 500%.

You see, in this example, the bank that lent you 80% of the value of the property is already receiving a return on their investment. It is called interest. They do not require you to give them a part of the property appreciation as well. Given this, you can not count the entire value of the property in your investment return calculations.

Of course it is not as simple as that. There are other considerations that need to be included in the calculations to be precise but the basic idea is correct. If you started applying this method to calculating your return on investment, you will discover that investment property is an extremely high yielding investment returning anything from 20% to 100% per year on your investment. Investment property rivals shares for returns and surpasses shares through removing volatility and risk from your investment.

You have heard from so called experts that investment property will always underperform shares and other investments. You have heard that the only way to receive a high return on investing in property is through appreciation (price growth). You have heard that rent does not give you a high return. You have heard that you have to use Negative Gearing when investing in property to squeeze out any return. Unfortunately, none of these statements are true.

Let us show you why....

Let's take an example property with the following variables:

Purchasing and Investment details:

Purchase Price (new 2 bedroom unit) $185,000
Bank Loan - 80% $148,000
Interest on Loan (Interest rate 5%) $7,400
Your Contribution - 20% (your cash) $37,000

Cashflow details:

Rent per year (Gross) $10,140
Total Expenses (property management, insurance etc..) $3,100
Rent per year (Nett - rental income after all expenses) $7,040
Total income from tax deductions $1,960
Total NETT rental income plus tax deductions $9,000

From this example we see that your final position by owning this property is that you will have a $7,400 interest bill and about $9,000 in income. Therefore, you will MAKE A SURPLUS OF $1,400 PER YEAR. What does that mean if you work out return on your investment?

Well, you have earned $1,400 on your initial cash investment of $37,000 (your contribution to purchase the property). This represents a return on your initial cash investment of 3.8%. That is low you might say and we would agree with you. You forgot about one thing... this property is paying you money to own it. You have just bought an asset that pays you from day one.

What happens to property over long term? Generally properties go up in price. In fact, the average increase in price recorded over the last 100 years or so is compound 7% per year. If we apply this thinking to the above example, 7% increase on the original purchase price of $185,000 is $12,950.

Therefore to calculate the TOTAL return on your original CASH investment, you need to do the following.....

1. Add the income from rent and tax deductions to the price appreciation.

* $1,400 + $12,950 = $14,350

2. Work out the total return on your initial investment by dividing the above by your investment

* $14,350 / $37,000 = 39%

Amazing, your initial investment of $37,000 used to purchase this property earned you 39% return on YOUR MONEY in the first year. Of course, unlike shares you are not able to cash out and take this profit immediately. With property, you have to wait for some time before you can cash out fully.

To put a 39% annual return on your money in perspective, it is 10 times greater then the bank will pay you. It is 4 times greater then professional fund managers strive to obtain - the same ones that get paid millions in bonuses. It is nearly 2 times greater then the richest man on the planet, Warren Buffet, consistently makes.

How does that compare to all your share investments or any other investment for that matter? Where else can you buy an asset and have it pay YOU from day one and increase in price? Remember property appreciates in cycles, but it ALWAYS appreciates.

This is what property professionals know and do not seem to want to explain to everyone else. Now you know how to calculate real return on your money, not the bank's money. You do not have to work out the return on the bank's money, the banks can do it themselves. You need to care only about your funds. So when you do the calculations right, you will find that overall by purchasing the right investment property, you will make up to 100% returns on your money. In the worst case scenario you will only make 30%. Either way, the returns are phenomenally high by normal standards.

All this can be done without any risk and in some cases, with absolutely guaranteed rent!

Now what do I do?

Hopefully we have shown you that property is a remarkable investment that is hard to substitute. Not all properties are the same and you need to watch out for those that may stand empty for long periods or give you tiny tax deductions.

Viva Properties has an education department that teaches people for FREE aspects of property investment - various pitfalls, risk minimization techniques, early mortgage repayments, ways of accessing properties for a discount etc... We teach by running small workshops of 10 to 20 people. During the workshops you are given incredible insights into how property investment works and this new knowledge is applied to specific property examples including those that you want to examine.

So if you want to learn from the experts how property investment should be done and pay nothing for the knowledge, please go to www.vivaproperties.com.au


Article Source: http://EzineArticles.com/?expert=Greg_Rips



Article Source: http://EzineArticles.com/2430362

Rules for Investing- How To Build a Portfolio of Safe, Secure Investments

Developing an investment plan:

To invest wisely, you must have a suitable investment plan that ensures the appropriate amount of growth for you. Your investments should also be safe and easy to administer.
The first step in developing an investment plan is to identify what type of investor you are. Types investors are often determined by their stages of life. Here's a guide:

- Unmarried person under 40 years. Focus: Long-term investments, medium and high risk. Emphasis: capital gain, compound growth.

- Two-income married couple without children, ages 20 to 40 years. Focus: Long-term investments, medium and high risk. Emphasis: capital gain, compound growth.

- A family income, young children, aged between 20 and 40 years. Focus: The long-term investment, low-risk environment. Emphasis: compound growth.

- Single person, 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.

- Married with children or separated children from 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.

- All investors aged 60 and over. Focus: Short to medium-term investment, low risk. Focus: Revenue.
The following examples are mixtures of the investment portfolio for different types of investors.

Low risk investments:

Low risk investments consist primarily of cash, fixed interest and retirement. This has the lowest risk of all investments, but also has the lowest performance - on the market today, about 3% to 6% annually. Fixed interest include cash, cash management trusts and bonds. Return of about 5% to 10%, sometimes as high as 15% if you invest in global bonds in good markets.
pension returns and risk profiles vary from one institution to another, however, the best and safest usually return on average by 10% each year.

Medium-risk investments:

Medium-risk investments include shares held and not speculative. Diversified funds that invest in a range of asset groups, are also considered medium risk profiles. The average yield of these investments will be between 8% and 15% per year.
I also like to include a wide range of investment funds, as we shall see later, in the range of medium-risk investments. Some can return up to 25% and more, depending on the type of fund and administrators.

High risk investment:

High-risk investments include all speculative shares, futures contracts, and any other type of investment that is purely speculative. Because this type of investments we bet if the price will go up or down sometimes, I often classify this as a form of play. Therefore, returns are limitless, but it is also the ability to lose the money invested.
The basic rule for investing in highly speculative stock is to build on thresholds "sell-out" three and three down. For example, if you buy a stock at $ 20.00 per share, its sell-out thresholds can be:

Sell ​​out threshold of 3 $ 30.00

Sales threshold of 2 $ 25.00

Sell ​​out threshold of $ 1 22.50

Buy $ 20.00

Selling Out Threshold -1 USD 17.50

Mandatory redemption threshold -2 $ 15.00

Mandatory redemption threshold -3 $ 10.00

Whenever your stock reaches a threshold levels, sold a third of its population.
If the action starts to rise, sold $ 22.50 one-third and one-third to $ 25.00, and so on. If the stock starts to fall, also sells third party to $ 17.50, and another third to $ 15.00 and the final third at $ 10.00. This way, you will never lose all your money, however, has also set a limit on the total profit you will make on the investment. What I have found to be the best and safest way to invest in speculative stocks. In 1987, my husband and I have been saved severe losses to the collapse of Wall Street because we were well and truly on the market by taking our profits in advance. Like all systems, this strategy will only work as long as you obey the rules and do not be too greedy.

Mutual Funds:

Mutual funds are a selection of investments that are professionally managed by a financial institution or organization. These institutions have a wide range of specialists, researchers and counsel who devote their time to ensure that the fund invests in the best companies and assets.

Besides the advantage of having experts manage your investments, managed funds also give you the opportunity to invest in a wide range of stocks, real estate and bond markets, either locally or abroad, however small that an expense of $ 1000. In the latter case, also require a "savings plan" where you agree to deposit an additional $ 100.00 per month at least.
Because managed funds cover the full spectrum of investment risk profiles, you can easily cover your preferred investment portfolio, as described above, by investing in several different funds.

Develop its investment program:

After identifying the type of investment, it is necessary either to find a good financial advisor or devote his time to research investment options.

Actions always exceeded other groups active in time. However, the equity markets may fluctuate widely in the short term, so any entry must always be done with a long-term up to 10 years. Even better managed equity funds can fall if the stock market crashes or enters a severe downward cycle. While ensuring that you are with a serious background with good managers and be ready to roll "waves", your investment will do well in the long term. If you are short-term, low risk category then your investment should be in the safest and most stable neighborhoods with declining profitability.

Rules for Investing:

The investment may seem daunting to many people. Maybe you've tried it once and not, or maybe you're just afraid of losing their money.

To avoid losing capital, you just have to be aware of the major pitfalls and always avoid. Simple and reliable rules for investment are:

1. Have a plan. Always make sure that you or your financial advisor develops an appropriate investment strategy for you incorporating your risk profile, time and financial objectives. As silly as it sounds, many people plunge headlong into the substantive work by investing these fundamental issues.

2. Do not put all your eggs in one basket. Obvious advice, but many people can not follow. Many people think they are on the right financial path pay the mortgage on their family home and then buy another property for investment purposes. Think about it! He put all his eggs in the basket a financial asset - property. What if the housing market collapses? Despite the common thought that this is a safe way to invest, the result is very risky. You have invested all their hard earned money in one area.

3. Build in time. There is an old saying: What this means is that when the market share is so high that everyone starts to climb "When the tea lady starts to invest in the stock market, it is time to go." board, has probably peaked. There are two ways to delay investment success. The first is to always choose the low-end market to buy high-end market to sell. It's very hard to do. Even the most competent experts have problems. The second way is to choose a good investment and keep them in the long term (say 10 years or more) and ride the waves in the market. Sure, easy investment, choose the second method. Do not buy into the top end of the market and sell once it begins to fall. You will definitely lose money that way.

4. Avoid high-risk investments. These include commercial enterprises at risk, tax avoidance schemes highly speculative stocks or too good to be true propositions that promise unusually high returns.

5. Avoid loans for their investments. Although some financial advisors advocate "the preparation of their investments," which can be fraught with danger. Equipment means borrowing. If loans for investments that takes care of its costs by 40% fixed margin must cut too much, especially if you lose your current income level.

6. Stay with the traditional and known. As described in this chapter, the best and safest investment interest, property and shares are set. Calculates optimum combination for your investment profile, have an insurance plan to work with and you can not go wrong.

Ann Marosy is an accountant, consultant and motivational speaker. She was formally the controller of the subsidiary Aust Fortune 500 company, Jardine Matheson; Finalist of SA Executive Woman of the Year and is the author of "The Money Programme: Managing the six steps of the wealth" and "Rules of Money: The 7 simple rules of money management."

Land Investment in the UK - Eight Things Smart Investors Know

Land in the UK is one of the best investments available land. These eight facts, presented by an expert in planning and investment of the earth, tell you what smart investors already know to invest in land

1) Investing in UK Land is a real asset

You can view, use, and most importantly, build on land investment. You hold the legal title to your land investment as collateral. No complicated concepts in land investment, just a growing demand for a limited amount of land in the UK.

2) invest in land produces high yields

A limited amount of land in the UK partly explains its historically rising value, and implies it is unlikely to depreciate. Mark Twain said: "If something can not be manufactured and the underlying demand is constant, its value will tend to increase" The demand for land in the UK is at least constant market increases.. Housing reflect the growing demand for houses of a growing population. Therefore, investing in land in the UK provides high yields. It is reasonable to achieve the equivalent of 30-35% annually in a country of five investment projects. This is equivalent to the combined yields of the order of 400 to 450%. These yields are difficult to achieve with other investments in the UK.

3) land investment is an investment in the "real world"

The value of property assets is clear and transparent. This is not the case with all investments in the UK, such as derivatives. Even with traditional equity investments, the average investor rarely knows whether the equity is really undervalued (buy signal) or over-priced (sell signal).

stock market scandals resulting from accounting malpractice highlight the limitations of the average investor understanding of their exposures. Investors land in the UK are usually already active players as homeowners, so they already have some experience in the market.

4) UK Land has a lower entry point compared with buy to let

The price tag on a typical property in the UK is approximately £ 200 000. A plot of UK investment that offers much larger relative returns is priced at around £ 10,000! Remember the iron law of investment is diversification, commonly known as "Do not put all your eggs in one basket." Because land investment has a level well below the input property, wise investors can more easily practice the Iron Law.

A typical UK investment requires around £ 200,000, but a diversified portfolio of investment land could be created for less than £ 50,000! Investing in land, with its lower entry point, therefore gives the investor more "likely" to choose a lucrative investment in the UK. However, in no case is essential to build a huge property investment portfolio: the key to all the considerations you are considering investing in land are of two types: the choice of good quality UK land, and choose a good provider in property investment. The 12 Land Investment Guidelines, located in http://www.land-investment-uk.com/homepage/index.html will help you do these two options.

5) Investment in land capitalizes housing crisis in the UK

Investing in land is the most lucrative way to capitalize housing crisis in the UK. You feel the pressure supply in both rich and poorer areas up and down the country. The number of social housing in the UK has dropped dramatically over the past 25 years, while the owners of social houses for rent has increased dramatically, and owner occupation has doubled.

The combined effects of these factors make investing in land a good choice in the allocation of assets in a portfolio of UK.

6) Investing in land is passive and hassle

All investments in the UK require careful consideration at the entry and exit of the investment. However, some UK investments also require active management of life (for example, trade in stocks and commodities) investment. Investment land, on the other hand, is completely passive, which makes it popular with many investors. Investment land is easily managed and investors should be fully informed of their current investment.

7) Land Investment has low volatility of returns

The volatility of returns of the earth's investment is an important factor. Refers to the extent to which the value of the investment rises and falls in his life. Less volatility makes it easier for the investor to know their wealth at any given time.

The investment land in the UK is not volatile and is actually relatively predictable. The value of a land investment tends to follow a linear path: a project of 4-5 years, the value of the land investment in years 0-3 will tend to rise relatively modest effect of " organic growth "(commonly term" inflation "). The land investment is normally good value during the year 4-5 (must be attained permission to build on land.) The land investment may be stripped of that time for maximum benefit.

The smart investor knows that they can more easily estimate the future value of your portfolio with land investments than other asset classes. The land investor can plan future critical funding needs such as tuition and college, retirement plans, and the costs of health care. More concrete future planning may not be so easy if the investor has exposures that are more volatile than investing in land.

8) Investing in land creates real wealth accumulation of income

As we have seen, are entirely possible return of 400 to 500% over a 4-5 year project cycle if an investor chooses good land and provider experience in property investment in the UK . Therefore, an initial investment of £ 10,000 to £ 50,000 could grow. If these statements are then reinvested in another investment project countries with comparable yields, the initial land investment could increase from £ 10,000 to £ 250,000.

Some of the most successful people are enjoying the financial benefits of the composition of property investment. This approach requires a vision a little longer, but the rewards are significant. Compounding the land investment can offer more than just good investment returns: it can create very important wealth!

Leonard Montgomery is an expert in investment based on land and in the UK. She loves to share her experience with ordinary men and women to help them avoid the pitfalls of investing in land use and has experienced first hand.