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articles > What are leverage & Gearing!
Articles > What are LEVERAGE and GEARING and how do they make you RICH?

Two very important terms used in purchasing portfolios are LEVERAGE and GEARING.

These are two things that put property investment way ahead of other forms of investment in the medium and long-term.

GEARING is where you use your money to take control of an asset with a value greater than you have at your disposal. Or in other words, you can DO MORE with LESS CASH!

As an example, if you had £20000 to invest; which would be the most lucrative option?

A bank account or a property?

If you put the money in a high interest bank account paying 5% interest a year, you would receive a gain of £1000 after the first year. Not bad.

If you use the £20,000 as a 20% deposit on a £100,000 property that has a rental yield of 6%; you would receive a gain of £6000. This is because the gain is on the whole £100,000 property rather than the £20,000 invested.

Anyone can plainly see that this is a MASSIVE difference in the return on investment and this does not take into account the possibility of capital growth.

If the property increases in value by 5% in the first year of ownership, then your gain would be increased to £11,000.


LEVERAGING is a very simple process; you invest as little of your own money as you can and borrow as much as possible from someone else... This is the way that many PROPERTY MILLIONAIRES have made their fortune.

As an example, you buy a property for £100,000; should you put in a high amount of capital? If you put in 50%, borrow the other 50%, then the property goes up in value by 25% to £125,000, you would have made £25,000 which is a 50% return on your £50,000 investment. If you had put in 20% and borrowed the other 80%, you would still have made £25,000, however the return on investment would have shot up to 125%! Nice!

 

Sky Rocket your wealth potential by contacting a BROKER to discuss your options!

Article supplied by Site Administrator RC

 
 

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