• Tweet
• Email

I was looking this morning at some pics sent to me from a Hawaiian surfer who had developed a way to take pictures from inside big waves.  They are amazing and I will share them here one day soon.  The article indicated his pics were in demand which meant he had taken an innovation and profited from it.

So this got me thinking about innovation in general and of course in property investing.

Real Estate has some fundamentals that don’t require much innovation.  It has predictable cycles, fairly rigid rules legally and a long track record.

So for you and I the exciting thing is that we can do well out of investing without any clever stuff, just understand the basics and do them well will get us a good result.

However if we do add some innovation we can accelerate our success and buy more of our lives back.

For example I was looking at a post on a forum recently where a young man was asking where to put his cash while he saved for a deposit for his first investment.

There were several answers regarding on call accounts, shares and the like which were answering the question but applying no innovation.

So let’s look at someone trying to save say $50,000 for a 20% deposit.  They have $5000 now and they can put away $15,000 a year.

Option 1 is they put their money in the highest interest place they can and save like mad.

They will pay tax on any interest they receive and inflation will erode the power of their dollar. Even if inflation sits at only 3% their 20% deposit will now need to be $55,000 at the end of 3 years and their $250,000 property may now be $275 to $300,000.

So at the end of 3 years they have saved $50,000 plus interest but inflation and tax means they are $50,000 ahead if they are lucky, possibly less.

If inflation increases they may never accumulate enough funds to start investing.

Option 2 is to apply one simple innovation.  For example an option.

This same person could find the property they want now and take an option to purchase it for $250,000.

By taking the option for say $1000 they have now removed the inflation problem and locked in their purchase price.

They can still save their money but they could now also potentially move into the property and lease it until they exercise their option.  This means they are no longer paying rent elsewhere and they could negotiate a portion of their lease payment as principal reduction payments.

So now their situation at the end of 3 years is they have a $275,000 to $300,000 property secured for $250,000 and they have $50,000 cash AND they may also have a further $15,000 credit against the purchase price.

So they could probably get an 80% loan against the property and after their credits not even require a cash deposit.  Which means they can immediately use their cash to buy their second investment .

I know which camp I would rather be in .

Stay Inspired and Stay Safe ~ Dean Letfus.

The Ethical Investor

Your email: