Property 101: Leverage
What is Leverage?
Leverage is the main contributor to property investment returns. There are a number of legitimate investment options out there, but it’s the ability to borrow the bulk of your investment from the bank, which makes property number one. It means you get a ‘return’ on your own investment, and the return on the bank’s investment too.
For example, would you rather invest $100,000 in a relatively safe company stock, with a forecast return of 10%, or a property with just 6% growth forecast?
Most sensible investors would choose property at the lower 6% rate, because they can borrow $4 for every $1 of their own money invested, making their potential return on investment 5 times higher i.e. 30%.
Chart: $100,000 plus additional $5,000 per year invested in to different investment types.
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