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Real Estate Investing Strategy-Capital Growth Model |
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| Under this strategy, the investor attempts to grow the capital value of his portfolio through time; regular monthly income or cash flow is secondary to his main financial objective. With the use of leverage (maximum loan quantum), interest only loan and by structuring his finance, he can maximise growth and minimise tax. In Australia, over the last hundred years, property have appreciated on average by 9% and in the last 15 years it average 8 to 9%, depending on capital cities or regional centres. We will use 7% as a conservative figure for our model. For simplicity of computation we will omit transaction cost and other incidentals. |
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| Example Property A, purchase price (valuation) $300,000. Loan quantum $210,000; down payment $90,000; Interest only loan. Assuming we do not take into consideration transaction cost for the property i.e. stamp duty, legal and furnishing for simplicity. 5 years 10 years 15 years Property A ($300,000) --------------------------($420,000) appreciates $120,000 |
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| The unrealised gains of $120,000 is used to financed the purchased of property B through refinancing. We assume that a similar property of the same size and location is bought. The bank will restructure the loans in such a manner that the unrealised gain of $120,000 (28.5%) is considered as the down payment and a loan of $300,000 (71.5%) is taken. |
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| 5 years 10 years 15 years Property A ($300,000) ------------------------($420,000)-----------------($590,000) additional growth $170,000 Property B ($420,000)-----------------($590,000) additional growth $170,000 _________ Total holdings $1180000 ========= |
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| Over the next 5 years (tenth year) the property appreciates by a further $170,000 each and two similar properties are purchased; property C and property D. Similar restructuring of the loan is done; $170,000 (28.8%) as down payment and a loan of $420,000 (71.2%) is taken for the two additional units. |
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| 5 years 10 years 15 years Property A 238,000 gains ($300,000) ------------------------($420,000)-----------------($590,000)-----------------($828,000) additional growth 238,000 gains Property B ($420,000)-----------------($590,000)-----------------($828,000) 238,000 gains Property C ($590,000)----------------($828,000) 238,000 gains Property D ($590,000)----------------($828,000) -------------- ---------------- Total holdings $2360000 $3312000 ======== ======== |
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| The investor consolidates his position and takes profit. In the above portfolio, property A is disposed off and the outstanding loans (property A) are cleared. As there are carried forward paper losses over the past 15 years and a 50% discount on capital gains the investor pays little or no tax on it. The $328,000 will serve as a buffer as well as to adjust the equity/debt ratio to produce more positive cash flow. A sizable portfolio (828K X 3= $2,484,000) is built up with only with an initial investment of $90,000 and regular cash flow is forth coming every month. |
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| ___________________________________________ ‘How To Build Massive Wealth In Real Estate Starting With No Money Or Poor Credit’. How A Multi-Millionaire Mentored This College Dropout And Revealed Jealously Guarded Secrets That Led This Ex-College Kid To Purchase Or Sell Over $12 Million In Real Estate, Author 2 Best Selling Real Estate Courses, AND Retire .... Not all methods mention in this e-book is applicable to all countries, however much valuable concepts can be learned. It is about having a paradigm shift in our investment thinking. |
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