Wealth Creation from Low Yielding Industries
Return on Investment vs Capitalisation
The dilemma of what is the best information when investing in a business and over what term. When we come to buy a business or investment, we have to take stock of how our wealth will grow over the life of the business or over the term that we are willing to commit.
The question that we have to consider is, is it our goal to exist week to week on the money that is left after we have serviced the business commitments. Because at the end of the day the important part is what’s left, “you know what we have in our hand to spend that is the important part!” Not really!
The important part of any investment is overall capital wealth development that’s the path to wealth creation and being comfortable in later life.
Quite often, we have people who make comparisons to high-income high return high-risk businesses and say that’s for me. “I want to earn a minimum of 30% R,O,I nothing less and don’t try and sell me any of that low yield 10%, I can’t see the point, I can put my money in the bank and get that!” (Not Lately!) However, at the end of a term you will have your initial investment plus interest.
Now see what happens when we invest in established low yield businesses with commercial property of say 9% with a growth of 4% and compare the two investments. Let’s take an investment of say $1,000,000 in a commercial property.
| Year | ROI | Capital Growth | Bank Interest Compounding |
| 1 | $90,000 | $1,000,000 | $1,040,000 |
| 2 | $93,600 | $1,040,000 | $1,081,600 |
| 3 | $97,344 | $1,081,600 | $1,124,864 |
| 4 | $101,238 | $1,124,864 | $1,169,858 |
| 5 | $105,287 | $1,169,858 | $1,216,652 |
| Totals | $487,469 | + $169,858 = $657,732 | $216,652 |
Note; the table assumes that you do not re-invest your R.O.I back into the property and if you did invest in another investment, your wealth creation would be even higher.
The table shows that low yield property investments out perform conventional institution investments by 203% over the indicative period.
This scenario is a static type of investment, which is indicative of a commercial rental property. Where as a low yielding business such as a self storage complex, with strong market influences could have a faster effect on the business component of your property, which could put in-place greater capital growth.
The table is not intended as investment advice but merely an opinion and people should make there own investigations and consult their professional advisers before making any investment strategies.
The table shows that low yield property investments out perform conventional institution investments by 203% over the indicative period.
This scenario is a static type of investment, which is indicative of a commercial rental property. Where as a low yielding business such as a self storage complex, with strong market influences could have a faster effect on the business component of your property, which could put in-place greater capital growth.
The table is not intended as investment advice but merely an opinion and people should make there own investigations and consult their professional advisers before making any investment strategies.
