Property is such a powerful way to grow your wealth because of the power of Leverage
Leverage : is “The 9th Wonder of the World”,
Leverage from property - using opm (other people’s money ) FROM
- BANKS,
- TENANTS, AND
- THE TAX SYSTEM
Here’s how each component plays a role:
1. Using the Banks Money
Definition: Leverage involves borrowing money to invest in assets, allowing you to control larger investments without needing to provide the full purchase price upfront.
Borrowing Power: When you take out a mortgage to purchase a property, you’re using the bank’s money to invest. This allows you to acquire assets that you might not be able to afford outright and thus leverage up into your Investment.
Asset Appreciation: As property values increase, your equity grows. This can lead to substantial compounding returns on your initial investment, allowing you to reinvest or fund other financial goals. Equity is where you grow your wealth, which also gives you the opportunity to draw down on equity as a deposit on your next investment property … and go again!
How It Works:
- Example: Michael invested in a property on the Gold Coast last year for $500,000, put a deposit of his own money of $50k and we got him a mortgage for $450,000 (90% of the property value)
- Impact: the property is now worth $635,000. Michael’s equity has increased by $135,000, and he only invested $50,000, resulting in a 270%% gross return on his investment ($135,000 gain on $50,000 equity).
2. Tenant Contributions
Definition: Rental income from tenants provides a consistent cash flow, which helped cover mortgage payments and property expenses.
In the ideal world (which should happen over time) , Interest Rates plus Expenses should be equal or less than Rental Income received making your Investment - Cash Flow Positive in your hands.
Meaning Michael’s investment property is now funding itself - and as the property increases in value over time, the $50k investment will continue to get exponential returns .
He can then rinse and repeat :)
How It Works:
- Example: If your mortgage payment is $3,000 per month and you charge $3,500 in rent, you have a positive cash flow of $500.
- Impact: This cash flow not only covers your expenses but can also be reinvested into other properties or used for personal financial goals, effectively using “other people’s money” to build your wealth.
3. Tax Benefits
Definition: The Australian tax system provides various deductions related to property investment, which can enhance your overall return on investment.
How It Works:
- Deductions: Expenses such as mortgage interest, property management fees, maintenance costs, and depreciation can be deducted from your taxable income.
- Example: If you earn $100,000 a year and have $20,000 in property-related deductions(negative gearing) , your taxable income drops to $80,000, potentially reducing your tax liability. Meaning the taxman is helping you pay for your property .
- Impact: The savings from tax deductions can be reinvested into your property portfolio or other investments, further accelerating your wealth-building process.
Combining All Three for Compound Exponential Growth
When you strategically combine these three components, you can create a powerful financial strategy:
- Increased Cash Flow: Positive rental income can provide ongoing cash flow, which, combined with leverage, allows for more substantial investments.
- Growth in Equity: As property values increase, your equity grows, which can be accessed for further investments through equity loans.
- Tax Efficiency: Utilising tax deductions can enhance your cash flow, allowing you to reinvest more effectively.
- Maximising Leverage : Using the Power of Leverage intelligently to grow your investment property portfolio.
Compounding
Compounding, is a Powerful Principle that when harnessed correctly, can turn your modest investment, into Significant Wealth over time !!
Conclusion
By leveraging bank financing, benefiting from tenant contributions, and utilizing tax advantages, you can effectively give you more wealth than you ever thought possible - helping you create your generational legacy
The right Property at the right time
A key factor is to buy the right property in the right area at the right time!!
This is a key 🔑 factor in maximising your wealth .
The cool thing is that in Australia, property in all major cities have increased significantly over time
So , when is the best time to invest in Property ?
In my view - today
Feel free to give me a call . I will gladly refer you to my property guru network, and I would be delighted to help you maximise your leverage by getting you the right loan ;)
