Measuring Your Real Estate Investment Returns

Congratulations, you have finally found one source of information that is both invaluable and easily applicable for your future investment decisions.

We have read many books, reports and various articles on investments, property investment in particular. The majority of them contain great information, some of them even give you instructions on how to implement that information. However, none of them seem to provide the missing ingredient to convert the intent of the article into the actual result. Their “how to” information is never complete, too complicated or overly simplified.

Finally, out of all our research, we have found a major deficiency in the information provided by other authors -

They do not explain properly why you would invest in the first place!

They do not explain how to measure your investments!

What is the point of investment if you do not have a very specific goal in mind? And if you do have an outcome in mind, how do you know that a particular investment will achieve your desired goal?

We hear many times that people wanting to purchase an investment property, without necessarily knowing why they are buying an investment property in the first place. We have probed for the answer only to receive blank looks, vague statements and complete incomprehension of the questions.

Ask yourself, why would you purchase an investment property?

Is it to create more wealth sometime in the future?

Is it to help you financially on a daily basis?

Is it to generate a specific return on your investment?

Is it because investment property is a better investment than shares?

Do you have answers to the above questions? If you do, how specific are those answers?

We have found that people will generally answer yes to all the above without having any specific outcome in mind.

In this report we will give you the primary tool that you will need to start answering the above questions.

That tool is the ability to measure the return on your invested funds.

If you cannot measure your return, you will never be able to achieve any of your objectives, or you will achieve them through luck and not objective, measured approach. Luck will not let you repeat your investment strategies. Luck is only good in casinos!

So how do you measure returns?

Let’s step back and discuss what is a return on your investment. When people talk about percentage returns or dollar returns on investment, they usually define these returns by time and the baseline investment.

So for example if you purchased a property for $200,000, after 1 year that property might be worth $210,000. Therefore your return on investment is $10,000 in one year or 5% in one year. This example has a specific period of time within which a return is measured.

However, when you measure a return on investment, do you need to measure the return on the whole price of the investment? When you purchase an investment property, do you purchase the property with CASH? Granted, some people in very exceptional and sometimes suspicious circumstances do buy property with cash! You would agree with us when we say that this is extremely rare. In most cases the investment property is purchased with a combination of your money and the bank’s money.

In fact, in most cases, the bank lends the majority of the purchase price – 70% to 90% of the purchase price. This means that generally you only put up your own cash as a fraction of the property price. Given that you have only invested 10% to 20% of the total purchase price, when working out the return on YOUR investment, why would you work out the return on investment based on the whole price of the property? You did not buy the property entirely with cash, therefore you don’t need to work out the return on investment on the entire price of the property.

We can provide an example of this in another field. Say you wanted to purchase an antique chest of drawers. You know that antiques go up in price with time, especially if they are properly looked after.

This particular chest of drawers cost $1,000. You did not have $1,000 so you borrowed $800 from a friend and put up the balance of $200. You made a deal with a friend that at the end of the year once you sell the piece, you will pay him $40 for the loan. At the end of the year you managed to sell the piece for $1,100, or for an extra $100. So you might think that you have made 10% return.

Or $100 profit divided by the $1,000 purchase price. You would be wrong. What you really made was $100 profit less $40 that you have to give to your friend for the loan. That makes $60 profit to you. To calculate your return you need to divide YOUR $60 profit by YOUR $200 investment. This means you made 30%. You only calculate the return on YOUR money and not your friend’s and not on the total purchase price of the antique piece.

Here is an example of how your property investment will look. The numbers are purposely simplified and do not take into account various expenses:

Example 1 – Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Increase in price in 1 year $10,000
Return on Investment in 1 year 5% (this is calculated by dividing the Increase by the Purchase Price)

Example 2 – Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Your investment of 20% $40,000
Increase in price in 1 year $10,000
Return on YOUR Investment in 1 year 25% (this is calculated by dividing the Increase in price by Your Investment)

In both cases the property cost the same and increased in price the same and over the same period of time. However, in Example 2 the return on investment was calculated on YOUR initial cash that you invested into the property. The difference is massive – 500%.

You see, in this example, the bank that lent you 80% of the value of the property is already receiving a return on their investment. It is called interest. They do not require you to give them a part of the property appreciation as well. Given this, you can not count the entire value of the property in your investment return calculations.

Of course it is not as simple as that. There are other considerations that need to be included in the calculations to be precise but the basic idea is correct. If you started applying this method to calculating your return on investment, you will discover that investment property is an extremely high yielding investment returning anything from 20% to 100% per year on your investment. Investment property rivals shares for returns and surpasses shares through removing volatility and risk from your investment.

You have heard from so called experts that investment property will always underperform shares and other investments. You have heard that the only way to receive a high return on investing in property is through appreciation (price growth). You have heard that rent does not give you a high return. You have heard that you have to use Negative Gearing when investing in property to squeeze out any return. Unfortunately, none of these statements are true.

Let us show you why….

Let’s take an example property with the following variables:

Purchasing and Investment details:

Purchase Price (new 2 bedroom unit) $185,000
Bank Loan – 80% $148,000
Interest on Loan (Interest rate 5%) $7,400
Your Contribution – 20% (your cash) $37,000

Cashflow details:

Rent per year (Gross) $10,140
Total Expenses (property management, insurance etc..) $3,100
Rent per year (Nett – rental income after all expenses) $7,040
Total income from tax deductions $1,960
Total NETT rental income plus tax deductions $9,000

From this example we see that your final position by owning this property is that you will have a $7,400 interest bill and about $9,000 in income. Therefore, you will MAKE A SURPLUS OF $1,400 PER YEAR. What does that mean if you work out return on your investment?

Well, you have earned $1,400 on your initial cash investment of $37,000 (your contribution to purchase the property). This represents a return on your initial cash investment of 3.8%. That is low you might say and we would agree with you. You forgot about one thing… this property is paying you money to own it. You have just bought an asset that pays you from day one.

What happens to property over long term? Generally properties go up in price. In fact, the average increase in price recorded over the last 100 years or so is compound 7% per year. If we apply this thinking to the above example, 7% increase on the original purchase price of $185,000 is $12,950.

Therefore to calculate the TOTAL return on your original CASH investment, you need to do the following…..

1. Add the income from rent and tax deductions to the price appreciation.

* $1,400 + $12,950 = $14,350

2. Work out the total return on your initial investment by dividing the above by your investment

* $14,350 / $37,000 = 39%

Amazing, your initial investment of $37,000 used to purchase this property earned you 39% return on YOUR MONEY in the first year. Of course, unlike shares you are not able to cash out and take this profit immediately. With property, you have to wait for some time before you can cash out fully.

To put a 39% annual return on your money in perspective, it is 10 times greater then the bank will pay you. It is 4 times greater then professional fund managers strive to obtain – the same ones that get paid millions in bonuses. It is nearly 2 times greater then the richest man on the planet, Warren Buffet, consistently makes.

How does that compare to all your share investments or any other investment for that matter? Where else can you buy an asset and have it pay YOU from day one and increase in price? Remember property appreciates in cycles, but it ALWAYS appreciates.

This is what property professionals know and do not seem to want to explain to everyone else. Now you know how to calculate real return on your money, not the bank’s money. You do not have to work out the return on the bank’s money, the banks can do it themselves. You need to care only about your funds. So when you do the calculations right, you will find that overall by purchasing the right investment property, you will make up to 100% returns on your money. In the worst case scenario you will only make 30%. Either way, the returns are phenomenally high by normal standards.

All this can be done without any risk and in some cases, with absolutely guaranteed rent!

Now what do I do?

Hopefully we have shown you that property is a remarkable investment that is hard to substitute. Not all properties are the same and you need to watch out for those that may stand empty for long periods or give you tiny tax deductions.

Plan To Succeed With Information Product Creation: Why You Need To Split Your Process Up

One of the keys to succeeding in information product creation is to break the process up into discrete steps. This frequently isn’t an instinctive reaction for the typical information marketer. Especially on the internet where small sized learning products are the norm.

However, it is extremely important to your ultimate success. In fact, I would go so far as to say that if you don’t do this you probably won’t succeed… even when you are starting out let alone as you move forward.

Your product creation system should do this for you if only to help you to understand the overall task.

But why?

In this article, I’m going to ignore chunking and focus on the practical aspects. That’s not to say that chunking isn’t important. It is. It’s important to understanding and to learning the process. But while you can use the same chunks as you move forward, long term your focus needs to be on the operation of the system not the understanding of it. Unless of course you are constantly training new people!

So why is chunking important to long term use of the product creation process? (Yes, I know systems design uses a different term for this process but I’m not teaching you systems design. So I’m going to use the word learning content designers use.)

The first reason that having individual discrete tasks is important is one of schedule estimation. Frequently it is very difficult to estimate how long the total task of creating a product will take. After all, the size and type of the products matters as does the number of products in your product funnel. And those are just the most obvious elements. However, estimating a discrete task is often much easier. The total can then be estimated as the total of the discrete tasks.

Secondly, scheduling a large task can be problematic. However, by segmenting the task into a number of discrete tasks, you gain a much greater flexibility in scheduling. Not only that but as your business begins to add people you are able to schedule multiple people to the product creation.

Finally, segmenting a large task into smaller discrete tasks allows you to have much better control over the product creation. This affects two different areas — status and quality.

By segmenting your process into discrete tasks you are able to schedule and record the progress at much more detailed level. As a result you are more in control of the status of the product creation. You know what everyone is doing. When they should complete it. And how much it should cost. You also know exactly what has been done.

You also improve your overall quality. Instead of waiting until everything is done you can check quality as you go. This allows you to immediate react to low quality products without absorbing their costs. This means that you have less rework and your rework costs less. And if the product is not going to meet its quality requirement you will know about it in time to stop the development, change the requirement or fix the product.

Effective Marketing Strategies in Product Creation

Marketing includes matters such as pricing and packaging of the product and creation of demand by advertising and sales campaigns. There are other options, of course, like product creation, resale rights marketing, joint ventures and the likes, but they are merely secondary to the above.

If you take the freelance route, it is important to ensure that all rights to profit from the final product, or any materials produced in its making, remain yours. Bookkeeping, physical product creation or delivery of goods can be done better with specialized help. Determining the purpose of the product is vital in niche product creation.

Implementation of Methodology – The choice of implementation of Six Sigma methodology depends on whether development is required on existing processes (DMAIC) or on new process/product design creation (DMADV). Determining what you really want to sell, something that you can be relaxed selling is the first step at the creation of a niche product. With the technological advancements in the hosting industry, from automated control panels and scripts that simplify creation of accounts; to complete turnkey solutions, there is no excessive need to worry about spending time on the actual product sold to the customer.

For instance, you should be prepared to either perform yourself or to subcontract the completion of the following tasks:- Product idea research (are there any existing products or patents already existing for this idea)- Product specification document training (what it will do, how it will look, how will it be powered, and how the user will interface with it)- Marketing study (what it will be named, who would buy this, how much would they pay, how will we get customers to purchase the product)- Schematic or electronic circuit design process- Creation of a bill of material or BOM and an approved vendor’s list or AVL for each component in the design, preferably with multiple sources identified, with a BOM and AVL for each assembly level in the product- Printed circuit board layout design process (single sided board, double sided board, or multilayer board; size of the PCB; board material)- Mechanical packaging design with user interfaces (displays, buttons, switches, key. This removes all product creation costs from your budget as a marketer.

No other database of affiliate programs offers such a possibility for profit on either the affiliate side or the product creation site. Your chosen niche should allow for the creation of more than one product or service.

There are several marketing strategies that are necessary in the creation of a successful e-commerce web site – Email marketing (broadcasting) of prospects/customers – Effective use of auto responders (generate automatic email messages) – Online Newsletter – Online Form / Survey to capture your prospect’s email address – Electronic Product Delivery (if you sold a digital product) – Advertisement (Ad) Tracking – Back End Sales – Affiliate program etc.