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Return on Invested Capital

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Transcript

Return on invested capital.

Now, you might be wondering with return invested capital, what does it mean? So complex. Basically, it’s more of a mindset click, rather than a huge, complex statement or number to think about. If you’re talking about property growth, there’s the old saying, which is, “Let’s pool our portfolios, it’s going to happen in the next ten years. My portfolio is going to double.” Those sort of expectations are possibly the worst you could have, for having a clear mindset on your investing journey.

Why is return on investment capital important? Well, it actually makes you mind clear on how much money you put in, and what will come from that on the growth. So, if you put in, say, $45,000 on a $300,000 purchase, now that maybe is a 10% deposit, lender’s mortgage insurance, stamp duty, and some lawyers’ fees and outgoings. But if you have that money, you now don’t need your property to go from $300,000 to $600,000, you actually only look for 20% to 25%, because if you have your $300,000 property grow by 20% to 25%, you’re now looking at doubling your return on invested capital.

Do you see the mind shift there? That mind shift is what it will take to be a patient investor, and someone who could focus on the long-term without making massive emotional decisions. Because sometimes, if you’re expecting for that double or triple or massive gains on your property portfolio, because someone told you about some hot spot, that could lead you to some expectations that weren’t quite met, and maybe some emotional decisions.

So, next time when you’re thinking about your investment and the growth, consider return on invested capital. That’s it from us here at InvestorKit, the experts in wealth creation, helping you take action.