Compound effect in 1 crore challenge
Investopedia defines compound interest (or compounding interest) as interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.
In simple words, compounding is just about reinvesting any profits you get from an investment to increase your capital and thus making a higher profit in the next cycle of your investment. To grow it even more faster you can add even more capital besides the initial investment and the reinvested profits.
Our 1 crore challenge revolves around the idea of compounding and how it can change your life. We believe that if you invest 1 crore in real estate today you will end up with approx. 7 crores worth of real estate in 10 years time that is if you invest smartly. It is no fairy tale as it is proved by math’s and there are more than one way to achieve these phenomenal results. In reality the compound effect will work on any kind of investment as long as you can keep earning from it securely for that period of time.
You can keep your money in a bank and enjoy 5 to 10 % whatever bank is offering you or you can invest it in stocks etc or you can put your money in real estate, compound effect will work the same way for you but probably with different outcomes and depending on how much you are actually making from each investment.
How it works
In 1 crore challenge I am personally going to act as your consultant and adviser and find most suitable real estate investments which will give you a growth of approx. 20% or more annually. I will devise a strategy to enter the market at the right moment and exit at the right time and than move on to the next investment and so on.
It is important to understand that I am just an adviser to help you make the right choice at the right time, the final decision rests with you being the owner of the property, I can not buy or sell it without your consent.
Lastly you face the difficult choice of either taking profits out or reinvesting them in other real estate options. I actually suggest that not only you invest the initial capital and profits if possible you should add more capital as some times the situation may demand so. However I will try to do my best to make sure that we get an optimum reinvestment of 100% of our initial capital and profits but some times it may not be possible and we may have to add new capital to ensure a 100% utility of our funds.
Mr. A has 1 Crore for investment
He buys 2 x Gujranwala Files that cost him 92 Lacs approx., this leaves him with 8 Lacs unused funds, he can either add more capital to buy a 3rd file or can just start off with 92 Lacs invested and keeping the rest safe for future investments.
In real estate we will be facing a lot of these problems as unlike banks we can not always ensure that our 100% of money is invested.
Our time frames of any investment we do in 1 crore challenge may vary from a single day up to 2 years and in some extreme cases up to 3 years as well. At an average the investments will last for an year and half maximum (18 months). This means that in ten years we will be making some where between 6 to 8 different investments in different or same areas.
10% vs 20%
If I ask you a general question of math that if you make 17 crores from 1 crore at 10% per year in 30 years, how much will you make if we increase our interest to 20% per year for 30 years?
You would probably be thinking that you will make 34 crores or may be 50 or 60 crores. The exact answer is actually going to startle you as it did me when I was doing the initial calculations for our 1 crore challenge.
The right answer is 2.3 Billion, yes by just adding an extra 10% annual interest/profit for 30 years you end up making 2,3 billion instead of 17 crores.
This also summarizes why you should never put your money in the bank.
How much money do you need?
You can start investing with as little as have and there is no limit of how much money you can invest in our 1 crore challenge. No matter you invest 25 lacs or 10 crores we will work our best to grow it 7 to 8 times in next 10 years.
However if you funds lower than 50 lacs it may be hard to find an investment which will pay good returns and we will be unable to diversify. This may make building our first crore harder and longer but once we are there things will ease out.
In our 1 crore challenge we are going to utilize the full effect of compounding and reinvest any profits that we will make. We actually suggest that you should add more capital as well in time as that will speed up the compounding effect. However the choice is yours if you wish to take out profits, you can although we suggest against it as it will greatly effect your wealth creation to have an idea lets see this example.
Mr. A invests 1 crore and gets an average 20% profit annually which he uses to up scale his lifestyle and spends on unnecessary things.
Total wealth after 30 years : 1 crore
Total profits earned in 30 years : 6 crores
Mr. B invests 1 crore and gets an average 20% profit which he keeps accumulating and reinvesting.
Total wealth after 30 years : 2.3 Billion
Now let us consider another scenario
Mr. C invests 1 crore and gets an average of 20% profit which he keeps reinvesting and additionally adds 10 lacs every year to his capital
Total wealth after 30 years : 3.8 Billion
It is clear that Mr. C is the clear winner with nearly twice as much as Mr. B, however Mr. B is has done great as well and should be satisfied and happy . Mr. A however is left with only 1 crore which is now even lower in value due to inflation over 30 years and has actually grown poor.
Founder and CEO at Imlaak
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