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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 how 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 (The coolest name I could come up with at the time) and I’ll take you through that right now, as to why there’s a difference between going for your first, and purchasing the next investments. 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 look at affordable investments. It’s not to say that these options guarantee the activation of the “4+1 rule“, however, it can give you more of a chance than it does just sitting back and and waiting until you get that perfect deposit, all whilst inflation + potential price movements (only if upwards) can rob you.

RS = Regular Savings ?

It is the system you’ve created and how you save on a weekly, fortnightly, or monthly basis. 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. This is unfortunately the slow burn, however, with the right focus and determination it can be rewarding.

LS = Lump-sums ?

Sometimes it’s out of our control but still something we can consider. For example commissions, bonuses, or certain gifts on birthday’s, or other celebratory occasions. This is simply your extra funds that you receive that are outside your regular savings system.

R+LS = Pre first purchase of property

Now, on the left side (of the 4+1 rule) is what’s usually available to you when it comes to pre-purchase of that first property. Wondering why that first one was soo difficult? Having access to the left side only, are the limitations that actually exist and what make it a mountain to climb.

Okay, so now you are officially and investor, and this is the part where investors can potentially grow their wealth faster, because you’ve now opened ALL FOUR PARTS. ✅ The remaining two are:

A = Appreciation ?

Appreciation can either come in the form of your investment property growing in value, or your income increasing as you now have an increase in your overall income because of your investment property (assuming it’s a positive cashflow purchase).

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

T = Tax ?

From the tax perspective, depending on the type of purchase, its age and whether it’s a residential or commercial investment, there may be depreciation benefits available. Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, depletion or other such factors and It is currently a taxable deduction. Depending on your income and the overall tax deductions you may potentially see yourself getting funds back from the government each year, in the form of tax returns. (You can confirm this with a ‘quantity surveyor & accountant’) 

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 impacting the potential tax back you receive (if any).

What about the + 1 ?

As investors stars to grow their portfolio, not only do they gain confidence in their own ability to build a portfolio, but others actually start to gain confidence in their ability too. Joint ventures and/or passive investors are an example of this.

Rapidly building your portfolio and how you decide to get out there, may mean you will catch more attention. You may have more friends and family that potentially want to do what you’ve done. However, not with the same amount of risk, they may want you to take on those certain risks, and support them with passive investing returns on their money.

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 ‘4+1 rule’ = Regular savings, Lump-sums, Appreciation, Tax + Other people’s money.

That is how investors can grow their wealth faster, and why at times many investors can rapidly build their property portfolio. However its important to note that it isn’t just about buying ANY property as your first or second or beyond. Focussing on creating your system, managing risks, clear goal setting, and purchasing property that you feel can provide you with the A &/or T whilst also allowing you to maintain your RS & LS will be the key to portfolio momentumI .

If you found this helpful and want to find out what your options are with relation to purchasing an investment property you can:

Regards

Arjun Paliwal

Disclaimer – Contents of this document are of general nature only and should not be relied upon solely when making an investment decision. InvestorKit nor any of its directors, associates, staff, or associated companies bear any liability from any action derived from the contents of this email. One should always seek third-party investment information from relevant parties such as legal, finance, and accountancy enquiries.