The Principles of Leverage

The proven security of bricks & mortar is reflected in the fact that banks will lend up to 95% of the value of a residential property (for a variety of reasons we do not recommend more than 80% in most circumstances).

Leveraging

Leveraging means borrowing money to magnify any gain or loss you make on an investment.

You don't require a cash deposit if you have sufficient assets to borrow against.

One of the most popular means of securing a property without using cash reserves as a deposit is to use equity in the family home or other investment property.

This principle can also be extended to pay for the additional costs associated with purchasing property.

For example:

If you invested $10,000 in an asset and that asset doubled its value to $20,000 - you would make 100% on your investment.

However, assume you invested $10,000 of your money and borrowed $90,000 to buy an asset for $100,000.

If this asset doubled, you would have a gain of $100,000. This is equal to a 1,000% return on your original outlay of $10,000.

You would have leveraged the $10,000 against the total investment of $100,000 in order to make a 1,000% return.

Leveraging magnifies the gains.

It is important to remember that leveraging also magnifies
any losses that may occur.


About Property Investment
The Golden Rules
Subsidising Your Investment
Potential Pitfalls
 

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