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How investors grow their wealth faster

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Transcript

How investors grow their wealth faster. This actually came up as a question to me, and the question started off with, “I’m really struggling to get my first deposit together, and I want to know why investors can suddenly make it look so easy going from four, five, six, seven, eight, nine, ten properties and beyond?”

To answer this question, it comes down to the 4+1 rule and I’ll take you through that right now, as to why there’s a difference between going for your first, and going for the ones that happen later on. The change is dramatic and this is a big reason why some people actually jump into the market sooner, potentially look at mortgage insurance options, or potentially look at affordable investments. It’s not to say that that guarantees the activation of the four plus one rule, but it can give you more of a chance than it does just sitting back and using cash to wait until you get that perfect deposit.

So, let’s talk about what the four plus one rule looks like. RS stands for regular savings, so it’s basically the system you’ve created. It is how you save on a weekly, fortnightly, or monthly basis. So, if you had a calendar, you could dot out exactly how much you’ll have, by what time, because it’s just a consistent system that you’ve got in place.

LS stands for Lump-sums, sometimes it’s out of our control but still something we can consider. For example commissions, bonuses, or certain gifts on occasions like birthday’s, or other celeberatory occasions. This is simply your extra funds that you receive that are outside your regular savings system.

Now, on the left side is what you’re usually open to when it comes to pre-purchase of that first property. And this is the limitations that actually exist, also when it comes to buying a home, you don’t open the right side (T , A & OPM). Which I will explain shortly

Okay, so now you’ve gotten into investing, and this is the part where investors can potentially grow their wealth faster, because you’ve now opened all four parts. A stands for appreciation, and appreciation can either come in the form of your asset growing up in value, or your income increasing as you know have that coming in from your investment property.

Appreciation can actually impact your RS and LS. For example, from the income appreciation it might improve your regular savings, and then from the value appreciation if you borrow against it, it will increase your lump sumps.

Now we look at T. T is tax, from the tax perspective, you might have properties that have depreciation, or other tax advantages. You may potentially see yourself getting some money back from the government each year, because of your taxable deductions. 

Investors have the potential ability to combine regular savings, appreciation, lump sump savings, and T, the tax. Whereas when you’re going for your first place, or when you’re traditionally going for a home to live in, you get stuck because you’re only having access to the left side (RS + LS). 

And so with access to the left, that can really slow you down in comparison to having access to all four. Keep in mind the A & T to the right are ‘potential’, meaning you may have an asset that may not grow, or you may have tax policies change.

You may be wondering what the plus one is? As investors stars to grow their portfolio, not only do they gain confidence in their own ability to do that, but others actually start to gain confidence in their ability too. Joint ventures are an example of this.

Now, as your portfolio starts to build, you will catch more attention. You will have more friends and family that may want to do what you’ve done. But not with the same amount of risk levels. They may want you to take on those certain risks, and support them with their passive money, or their returns.

This is when OPM opens up, and that stands for ‘other people’s money’. Most of the time, it’s the investors that have built a substantial portfolio themselves that can start to open the floodgates up in this area.

The ‘Four plus one rule’, regular savings, lump sumps, appreciation, tax, OPM, other people’s money. That is how essentially investors can grow their wealth faster, and the difference it takes in growing your wealth from after your first few investments, versus trying to go for your first. 

That’s it from us here at InvestorKit, the experts in wealth creation helping you take action.