What is the snowball effect?

This week on Ask Rob & Rob, Charles asks Rob & Rob…

What is the snowball effect?

Rob B says that from a capital growth point of view, if you see your portfolio as a snowball at the top of the hill, as the hill drops down (representing time), by the time your snowball has been pushed down the hill – it is much bigger. The point being, if you do more work in the early stages (buying BMV), your ‘snowball’ will be bigger at the end. The first few properties are incredibly important and you need to make wise decisions.

Rob D adds that when he thinks about the snowball effect, he thinks of compounding rent. For example, if you want to buy a property every year worth around 80K, with a 75% mortgage and cash for the rest, you would need to save 20k+ (with fees) to buy that property which for most people is a very big task. But once you have your first property and it’s making you money, if you don’t touch that rent, you need to save less to put the deposit down on your next property – and if you keep doing that, you reach a stage where you can keep buying through rental income alone. Saving for the first two or three properties is sometimes a slog, but it doesn’t take too long for your ‘snowball’ to take effect and make life a lot easier.

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