I’m guessing you’ve heard this quote before…
- “Give me a lever long enough and I could move the world” – Archimedes.
But did you know just how relevant that statement is to your future wealth building? Let me explain…
The major difference between rich people and poor people is this: Rich people always use leverage. Buying and investing in real estate is the ultimate form of leverage.
In fact most rich people have created their wealth through real estate. Leverage, simply put, is borrowing money to build wealth. If you have borrowed money to purchase your own home you have already taken part in the concept of leverage.
The principle of leveraging involves borrowing money to purchase an appreciating asset of a higher value than you could pay cash for. Borrowing to invest enables a larger amount of capital working for you in the marketplace. Another term for borrowing money to fund share or property based investments is “gearing”.
The main benefit of leverage is that it enables the investor to purchase and control a greater number of assets, and therefore has access to a greater cash value associated with such assets.
Your leverage or gearing could either be positive or negative depending on the dynamics of the asset purchased. Positive gearing occurs when the income derived from the investment exceeds the expenses associated with owning the asset. Negative gearing occurs when the expenses are greater than the income generated from the investment.
Leverage is such a critical path to wealth building because:
- 1. It enables you to buy real estate at a far greater value than you would be
able to pay cash for; and - 2. It enables you to control more real estate assets without using your own
money.
- Understanding the use of leverage, once you have equity in an investment, is also the next step to multiple property ownership.
Have you ever heard somebody say “The hardest property we had to buy was our first investment property”?
It is often a difficult concept because your knowledge is usually very low when making this first purchase. But like riding a bicycle, once you are up and pedalling with a bit of experience, you look back and wonder what all the fuss was about.
Whilst we are not suggesting that successful property investing is as easy as learning to ride a bike, the principles are the same. Knowledge and action leads to success.
Creating wealth from residential investment property is for anyone who desires to passively increase his or her wealth over time.
If you would like myself (or one of our team) to show you how to leverage you wealth (over a casual cup of coffee), then we’d love to hear from you. I have a few openings in my diary and would be happy to catch up sometime.
Steve Gillespie
Property Coach and Educator
www.yourpropertybuddy.com.au
