I chose the most suitable thread for this topic. i have a question:
i want to find out the Annual return i would be getting on a property investment as a percentage (so it can be compared to say a 5% term deposit). can anyone let me know how to work this out or any calculations?
eg. property bought for $405 000 and in fifteen years time is worth $1090000, how do i work out the average Annual growth? please help immediately.
thankyouCompound annual growth rate (CAGR) is one method of assessing the average growth of a value over time. To calculate CAGR, one must solve the equation:E = B(1 + r)^T
where E denotes ending value, B denotes beginning value, and T denotes the time passed in years. The value of r that solves the equation is the percentage annual growth rate.
Using the same terminology to solve for r, the formula looks like this:
r = (E /
^(1 / T) − 1So in your example the answer is 6.8 odd:
r = (2.69)^(0.066….) – 1= 0.06823
F.[cowboy2]
you are a champion!! that’s exactly what i was after. thanks so much for that. is there anywhere that i can learn about equations like this (eg. a book)?
i was a little frustrated trying to work out how to get r from the intitial equation although it was already done for me! thanks heaps for that[thumbsupanim]You’re welcome! Save yourself the price of the book – the quote I got was directly from http://www.Wikipedia.org (my bad for not referencing it), which is just one of many great net resources I use almost every day. Saves me having to think, you see!
Cheers, F.[cowboy2]
Hi F. i had a look on that wikipedia site. i found it difficult to find any property stuff tho..
also, i tried applying the figures into the formula you just showed me.
i did 2.69 multiplied by 0.066, then subtract 1 and i get – 0.82?
sorry, its been a while since i’ve been at school. and i apologise for bugging you again.
MitchTo get accurate results you need to undrstand how you get your returns from property.
These include.
1. Cashflow
2. Capital Growth
3. Tax benefits.
4. Adding ValueThere is also the time value of the money . Getting $10,000 today is worth more than getting it in 5 years time (because you can do something with it in the meantime)
Using a program like Jan Somer’s PIA will allow you to input all these figure and get a present day value of the return called IRR (internal rate of return) which is the figure you are looking for.
Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
Join over 10,000 readers each month.
FREE subscription http://www.PropertyUpdate.com.auof course there are many ways to make money from property, but i simply want to compare the property’s growth rate to say a managed fund. i know of people who buy properties and get return of 5% p.a. for me i wouldn’t go ahead. that’s why i need something like the formula that was given to me.. only problem is that i can’t work out the formula, i put the figures in the calculator and get a completely different answer. maybe this ^ doesn’t mean multiply? what does this ^ sign mean? and if it is multiply.. then i urge you to try the equation yourself, with the figures provided[weird]
^ = “to the power of”
x^2 = x * x = x squared
x^3 = x * x * x = x cubed
x^y is found on the windows calculator, or you can just use the notation I originally posted if you have Excel, MS Works or OpenOffice.Cheers, F.[cowboy2]
^(1 / T) − 1
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