Use
leverage to turbocharge your returns
With capital growth as the primary goal, you only
have to apply the level of fresh equity needed to enable
the investment, and not more. It's control of the asset
that's important rather than owning it debt-free. Smart
investors don't try to pay off their properties. They
pay off the least amount possible, allow time to generate
compound capital growth, and then use surplus cash
to fund additional investments.
This means:
- using the bank's money (or OPM i.e. "Other
People's Money")
- limiting your personal capital invested
- magnifying your return on equity
- building wealth in the shortest possible time.
The principle of leverage is widely used in the structuring
of finance and mortgages for investment properties.
Debt becomes your friend, and the greater the level
of borrowings relative to your own cash outlay, the
greater the returns on your property investment.
Use different banks
There is a technical word for this; "Cross Collateralisation".
We prefer to simply say, "Use different banks".
The principle at work is that if Bank A holds the mortgage
on your family home, then it makes sense to approach
Bank B to provide the financing for your new investment
property.
Essentially this means you are spreading the risk,
and avoiding the possibility that should anything unforeseen
happen, that one bank isn't effectively in control
of both assets. Instead, the two entities operate at
arm's length, and at the end of the day this principle
places you in control of your assets and the investment
flows needed to support them, rather than one bank
having control over you and your investment properties
as your portfolio grows.
The same principle can be extended to future investments:
Bank C provides funding for the 3rd property, Bank
D for the 4th, and so on, leaving you in control of
the process rather than being a pawn at the mercy of
a single bank and its policies.
Need help with your property investments? Contact
us now
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