How Compound Capital Growth Works in the Longer Term

Have you ever heard of the term "compounded interest" as it relates to personal or business loans? Compounded interest is something most of us understand in that sense. However, the same principle of compounding is also applied to capital growth. It is the idea of compound capital growth that makes property investing so attractive.

Unless you are a full time expert trader, property is generally a long-term investment of 10 years or more. By taking a long-term view, the risk of losing money during the short-term fluctuations of the property market is greatly reduced.

In addition, by purchasing discounted, off-market property our clients have a low hassle way of making their money work very hard to maximise their capital growth.

The compound growth potential over a 10-year period can deliver an unbeatable return while allowing you to reduce your investment risk at the same time. The following chart illustrates the financial magic of compound growth with a typical Fruitful Property investment over 10 years:

Rental property is attractive because it is a low risk investment that provides residual income for the life of your investment. Holding onto rental property for 10 years or longer offers the opportunity to earn returns you could never dream of with savings accounts or other low yield investments. At the same time, property investment is a lot less volatile than the stock market.

Compound One Property at a Time

There are two perspectives of compound capital growth in relation to investment property: individual properties and your entire portfolio. Let's say, as illustrated in the chart above, you purchase a repossession property with a mortgage of £112,000, and then invest an additional £38,000 in renovations and repairs.

Based on current rental rates you would immediately enjoy a positive cash flow as soon as your property was rented. By the fifth year, you could realise a potential gain about £150,000. By year number 10, you could be up to £250,000. Now multiply that by a portfolio of 10 properties.

The principle of compounding is based on earning a specific rate of return year after year and, with each passing year, increasing the return based on what has already accumulated. With rental property, compound capital growth works differently than it does with interest rates on savings.

Rather than earning "interest" on deposits, you are earning capital based on a combination of rising rental rates and falling debt. By the time the mortgage is completely paid off your earned capital is nearly all profit.

Finding Your Properties

Does investment property sound intriguing? If so, you do not need to be a professional investor to get started. All you need is a good partner to help you find the right properties and access to financing from a mortgage lender. Buy-to-let financing is not hard to come by, just in case you're worried.

As for your buy-to-let property partner, Fruitful Property wants to be that firm. We have more than 30 years combined experience searching out the best properties for our clients. Rest assured that we do not settle for just anything. We look for only the best properties that will maximise your return on investment.

Over the years, we have sourced hundreds of bargain properties for our clients. In fact, many of them continue buying multiple properties through us. We are here to help you as well. Forget about savings accounts and other low yield investments; find out what it's like to compound capital growth in the lucrative property market.

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