Knowing a little about ‘leverage’ can help investors firm up a successful property investment strategy that grows your capital and creates lifestyle-fuelling wealth.
Leverage essentially refers to the way you can make your money work harder than the sum of its parts. In property, leverage is particularly important because it usually involves a much higher asset base appreciating in value, compared to just your cash balance.
That is, investing $50,000 cash in a property worth $250,000 (borrowing the additional funds) means you will have appreciating assets worth five times more than your original investment.
No other asset class can match property in its capacity to be leveraged with a reasonable risk, with your cash essentially being able to be stretched as much as 10 times further in a property investment.
Leverage, combined with principles of compounding growth and the rule of 72 discussed last month, delivers a solid property investment strategy over the long term.
To illustrate compound growth in action, we’ll be looking at a case study involving a $50,000 savings account and a $250,000 property. Stay tuned to see how these new homeowners leveraged their money to stretch it further.
Until then, call us anytime to discuss your own leverage potential.