For me, the key thing is to be on the right side of compounding, and to be the beneficiary and recipient.
Now, when you study compounding you’ll find some strange phenomena. Before we look at its impact upon property let’s look at a couple of simple financial examples.
Let’s suppose you deposit £100 in the bank at a fixed return of 5% and then forget all about it. What will your £100 be worth?
After five years £127.63. After ten years it’s £162.89. After twenty years £265.33. After thirty years £432.19. After forty years £704 and after fifty £1146.74.
In other words, by doing absolutely nothing in the first twenty years you’ll double your money, you’ll then almost double it again in the next ten years, and so on. We can see that the compounding over time is accelerating the growth of our initial investment.
So what can we conclude from this example? Simply put I think we can see two principles at work.
First, although the results are often not seen until the end of the compounding period the early years are important as that is when “critical mass” and momentum begins to build.
This means that the earlier you put your money into an investment, the better it’ll be.
Second, although the momentum is built in the early years the investment period has to be long enough for the fruit to be seen.
This means that the longer you leave your investment, the better it’ll be.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor