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Wednesday, 27 February 2008

7 Steps to Becoming a Property Millionaire, Prt 7 (The Power of Compounding)

It is now 4.5 years since we started, we control 3 properties valued at $1,270,000 with equity of $261,000.

Now we can choose to wait, do nothing else, and in 5 years we will have equity in the property of over $1 million dollars. How is that possible?

The Power of Compounding

$1,270,000 + 10% = $1,397,000 (5.5 yrs)
$1,397,000 + 10% = $1,537,000 (6.5 yrs)
$1,537,000 + 10% = $1,690,000 (7.5 yrs)
$1,690,000 + 10% = $1,859,000 (8.5 yrs)
$1,859,000 + 10% = $2,045,000 (9.5 yrs)

$2,045,000 less $1,009,000 loan = $1,036,000 equity

Not only are we now a property millionaire, 9.5 years after we began, our wealth is now growing at a staggering $204,500 per annum compounding. If you had started on this plan at age 20, you are a millionaire by 30.

Remember, we are buying properties in areas targeted for high growth, and so these returns are very achievable.

Summary: 7 Steps to Becoming a Property Millionaire
  1. Get a deposit
  2. Find a great deal (look for a property that is expected to grow at an above average rate)
  3. Buy off the plan property (save on stamp duty)
  4. Use leverage and deposit bonds (to minimise cash outlay)
  5. Settlement (get loan from lender and use equity from property)
  6. Renting out the property
  7. Buy more property and use the power of compounding

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