There are many reasons to invest in property: capital gains; low risk; regular cash-flow and tax benefits. One of the best reasons, though, is the ability it gives to leverage your initial investment into further investment.
What is leveraging? Leveraging is borrowing money to finance an investment. By doing this, you can buy more property than you could otherwise afford, and make more profit.
Example: Mike and Sarah
Mike and Sarah have scrimped and saved and have $100,000 to invest. They found a term deposit where they could earn 5% per annum. This would mean that they would earn an easy $5000 in the first year with no risk.
They’d have to work harder and face more risk to put that $100,000 into an investment property. However, that work and risk would more than pay off if, for example, property values increase by 5% in the first year. Mike and Sarah will earn $25,000 ($500,000 x 5%). They could be in to gain $40,000 before expenses if property values increase 8%.
Mike and Sarah could refinance after the increase in value and, as long as they keep their LVR at a reasonable level, could pull cash out of the property and use it for a deposit on another investment property.
A note of caution
Property investment is not without risk – values can drop as well as rise. Mitigate the risk by buying the right house in the right location and get the right loan for your needs. We can help with all of this. Also, make sure you hold your property for a long time.
There are risks involved in property investment and leveraging. There are also substantial potential benefits. Talk to us if you want to know how you can make the most of leveraging your hard-earned money into profit.