Property Investment Leverage
February 3rd, 2010 | 
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Investment leverage is the concept by where you leverage the value of borrowed money to increase the overall profit of an investment. When looking at property investment this would involve borrowing money from a bank or lender to supplement a lump sum or deposit to purchase property. Your profit or equity increases at the rate of the overall property increases, the increasing value of the property becomes your profit. If used properly, property investment leverage can be an effective tool for real estate investors to increase their return on investment. The key to success is to avoid making decisions without proper consideration of the key areas of risk in leverage.
1. Don’t Bank on High Levels of Appreciation
If the market crashes, or levels out you don’t want to be left out of pocket. If the numbers mean you will be in trouble if the value of your property doesn’t increase then it probably isn’t a smart investment. As appreciation is where you will gain your profit in property investment, it is fine to simply stay a float in a level marker situation.
2. High Repayments Can Be a Killer
High repayments can be crippling especially when coupled with lack of tenants, and ongoing costs such as maintenance. Although, a lower deposit essentially means more leverage of other people money, there comes a point when you need to look at repayments, and ask your self a few serious questions.
3. OK So You Got Finance Approved
Just because you have finance approved, it doesn’t mean that you should go ahead with an investment if other numbers don’t add up. Many an investor has overpaid for a property because they found a great finance deal. Just because you can get a property with low cash outlay doesn’t mean that it’s a good buy. It is still very important to look for good value in the property, and examine other market trends. If you have overpaid for property, appreciation will be minimal or worse be non-existent.
4. Cash Flow Helps
At the end of the day cash flow is the king. If once all your mortgage costs and expenses are covered you still have extra cash flow coming in from a property, then it’s got to be a winner. Even if the value of the property doesn’t increase, you still end up gaining through positive cash flow.
Posted in Investment Property | 
Tags: Borrowing Money, Cash Flow, Equity Increases, Key Areas, Lump Sum, Market Trends, Property Investment, Repayments