Property Leverage – Why it is Important – Logic Property Group

The concept of a property investment portfolio often revolves around something we call property leverage. In the property world, the term leverage simply refers to the borrowing of finances to increase potential return. Rather than coming up with the cash needed to invest in property after property, investors use the equity generated by the rising value of one of their existing investments to purchase a new one. This process can be repeated over and over again as the equity rises on each property. Of course, leveraging real estate to build wealth does rely on the value of the property growing and the size of the mortgage reducing or staying the same.

At Logic Property Group we coach and mentor our clients to begin their investment portfolio and grow it. This avoids any regrets further down the line, replacing that with a sense of relief and accomplishment that they made a decision that will have a positive impact on their future.

Leveraging in real estate –

Real estate is one of the very best industries in terms of leveraging opportunities. You can take $50,000 in cash and transform it into $500,000 worth of assets. Diversifying and building out your portfolio can result in some incredible investment returns, and leveraging property is one of the best vehicles towards this success. Across Australia, the average property investment doubles within ten years. Of course, not every investment will see this kind of return, but the average figures represent a 100% increase over a decade. Over the past 25 years, the national average growth rate has been 6.8% per annum.

Two examples of successful leveraging –

Let’s say that you bought a house for exactly $500,000, paying 20% as a deposit ($100,000) before borrowing the remaining $400,000 via a mortgage loan. Let’s also say that over a period of five years, the house goes up in price by $100,000. This would mean that the original mortgage loan, which was once 80% of the property value, would now be just 67%. This value would drop even lower if you had been paying off your mortgage in those five years. You would then have the chance to refinance your loan to increase it backup to the original 80%, which in this case would now be $480,000. This means that you have created a cash pool of $80,000 to be used as an investment in a new property. And the cycle continues.