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Property Utilises the Power of Leverage

Friday, May 23, 2014

 

Leverage is one reason why real estate investment makes so much sense to so many of the wealthy.

Leverage = using other people’s money to make more money

Leverage is also described as making ‘more’ with ‘less’

In the example below – if you have $30,000 and you invest it in the bank you will make a 5% return (based on today’s rates) so $1,500.

But if you take the same $30,000 and invest it in a $300,000 property and lets say it only goes up by 5% (to compare apples with apples) then you have now made $15,000 – 100% more than simply putting the money in the bank.

How good is that?

And, if instead, the property went up by 10% (closer to the average) then you have made $30,000 or 20 times the amount you would have made by putting the money in the bank.

 

And you don’t have to feel bad about using other people’s money.  Institutions called ‘banks’ WANT you to use their money – they make money too. 

Leverage has been a tool used by mankind since cave man ages.  The first spear was invented to catch more prey than the bare hand could.  Then horses were used to pull carts to get us places faster.  The greatest form of leverage in today’s world is the power of the internet.

Property is unique for its ability to be leveraged as you as you can borrow up to 95% of the value of the property.  In contrast to shares where you are lucky if you can raise 60% of the value of the share.

This really means your property investment is working hard for you.

There is a multitude of ways to leverage property in your favour and these include;

  • Leverage the banks money to buy property to make you rental income as an investment;
  • Use rental yield collected from tenant to help pay the mortgage;
  • Improve the property to increase the value of the property
  • Improve the property to gain a higher rental yield.

 

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’

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