Why Is Leveraging In Property Lucrative?

Financial leverage refers to borrowing money in order to achieve bigger property growth and investment. It allows an investor to place more money into purchasing an asset than they otherwise would have been able to. Ultimately, this creates the possibility for increased gains.

The bounds for using leverage is that by obtaining serval sources of capital, an investor is able to enhance the prospective return generated on their equity and unlock deals at a scale otherwise inaccessible due to capital constraints.

So how does leveraging in property work?

If you are a first home buyer and you have, for example, applied for a loan of $250,000, you can use this money to purchase an apartment outright. You would then obtain a strong cash flow that an unmortgaged investment would bring in due course. On the other hand, you could use this money to place a deposit on five separate apartments. Presuming that these properties that you purchased were bought in a prime location with the potential for growth and had neutral to positive cash flow, all of these five properties would admirably be looking after themselves in regard to cash flow while also increasing in value in the long term.

Benefits Of Leveraging In Property For A First Home Buyer

• You Get More For Less

In instances where you place all your cash into one investment property, that is it. Whereas, in cases where you leverage in property, you have the option to go for another property. You have the ability to obtain extra mortgages meaning you are able to own several properties. Assuming that each of these properties is acquiring reasonable returns, this would transcribe to more rental income and real estate wealth on your behalf.

• Less Risky

The power of leveraging in property lowers your risk. If you use all of your cash to obtain only one property investment and it does not perform well, it can result in a bad investment decision, and you will be left with nothing. Contrastingly, if you obtain several leveraged properties, you will still be acquiring income in the chance that one or two of your properties perform poorly.

• Tax Benefits

On the occasion that one of your tenants decides to relocate, you will be left to offset the expenses that go along with it. You will certainly be making negative cash flow, but with many investment properties in your portfolio, you will be able to make up this income from the rest of your investments in order to offset such expenses.

Be Smart With Leveraging & Minimise Risk

In order to get the most out of your investment, you should be highly meticulous in minimising your risk and maximising your investment. Here are some tips that investors should follow when leveraging in property.

• Purchase in metro areas where there is a demand for renters and a chance that properties are able to retain their value
• Purchase properties that have a potential for growth
• Buy properties that have a strong yield where they are able to pay themselves off
• Stay away from high-risk investment properties
• Have an exit strategy in place – if you had to sell quickly, would you be able to get your money back?
• Protect yourself against any unexpected costs – an adequate buffer in place, such as 2 months’ worth of rent
• Get a payment you will be able to live with – find a balance between your down payment and your monthly payments
• Be conservative in your appreciation expectation

How Can I Start Leveraging In Property Now?

Our mortgage brokers here at Greenline Home Loans are able to help you with the process of leveraging in property. When it comes to leverage, it is important that you have a clear and precise process and plan in place to figure out how you are going to set out your finances. If you plan on purchasing two investment properties, it is important that you have enough equity that allows you to cover the costs of the deposit, stamp duty as well as the buyer’s agent fees for both purchases.

Reach out to Greenline Home Loans today!

If you are a first home buyer, buying a residential property or wanting an interest-only residential home loan, get in touch with our team of experienced brokers at Greenline Home Loans. We have access to 50 lenders and a strong relationship with several major banks to assist you and offer a solution to suit your needs.

At Greenline Home Loans, we will tailor the best solution for your needs and walk with you hand in hand from the first day you consider leveraging a property. Contact our friendly team of brokers to speak about low-rate home loans on 1800 705 505 to get started today!