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Ben Kingsley Blog post by Ben Kingsley

‘Time is Profit’

Last month I wrote about how timing of a purchase was not so critical if you have a long term view of your investment property and you bought in a sound location, such as a major city like Melbourne close the major employment centre. This month I am focusing on the message that time is profit when it comes to the capital growth measure for property.

It’s well documented that property values usually move in cycles, similar to any economic cycle in a free economy.  A traditional cycle might be 7-10 years.  Inside this time line the capital value of a property may have been through a downturn, a flat period and an upswing in value.  As noted in last month’s newsletter, historically we have seen an 8.3% compounding return over a period of 34 years from 1974 – 2008.

My comment this month is about highlighting the importance of ‘staying the distance’. By this I mean the longer you hold the asset the better the returns.

Lets look at an example below:  In 1974 the median house in Fitzroy was valued at $22,300 and in 2008 is was $767,500 – that’s a 3342% return or a annual compounding return of 11.0%

‘Time is Profit’ Investment education empower wealth

The key message I want you to take out of this is the power of compounding and time.  In the last 8 years since 2000 the actual capital value improvement has been $450,250 however, over 34 years the capital value improvement has been $745,200.  Therefore, in the last 8 years over 60% of the value has been gained (60.4%).  The message is clear the longer you hold the asset the more wealth is created.

Now let’s take the example one step to further demonstrate the time value of money.

In year 1 (1974) the property grew in value by 11%, so it went from $22,300 to $24,753 – a $2,453 return. In 2007 the median value grew by 11%, so it went from $691,450 to $767,500 – a $76,050 return

This example once again proves the point; IT’S NOT WHAT YOU LOSE IN A YEAR THAT HURTS IT’S WHAT YOU POTENTIALLY LOSE IN 34 YEARS FROM NOW.

I bet very few people take this financial analysis on board when they decide to sell off an asset that will continue to grow in value.  Yet how often have you heard family and friends talk about how much they sold something for years ago only to comment on it’s worth today if they had of held onto it.  Sadly this is lost wealth and will go against those that choose to cash in too early on assets that will deliver in spades over the long term.

The take out of my comment this month should be clear, act now and hold on as best you can to retain an appreciating asset.  Be smart to ensure you have explored every possible avenue of keeping this asset on your books for as long as you can, build your appreciating asset base over time and you will succeed financially.

Knowledge is empowering……

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