Leverage - Can You Pass The Sleep Test?

Source: www.weirdomatic.com

Post by Garry Macdonald of Property Buyers Australia

Last week, we discussed the concept of leverage (using other people's money or debt) and how it works.

This week we'll consider the advantages and disadvantages of leverage.

 

Some of the advantages of incurring debt include:

It provides leverage and therefore facilitates the purchase of  investment real estate with minimum cash outlay. 

Debt enables you to continue purchasing investment property using a minimum of your own cash (subject to meeting the financial institution's criteria).

Because you are outlaying a minimum of your own cash, the 'cash on cash' return on investment is potentially much higher. 

'Cash on cash' return simply means the profit you make compared to the amount of cash you needed to outlay

 

Some of the disadvantages of incurring debt include:

Increased risk as a result of using OPM (other people's money)...the higher the borrowings (debt), the higher the risk. 

You need to be very careful when setting up your business structure.

"You must be able to 'pass the sleep test'...you must be comfortable with your level of borrowing and be able to sleep at night."

 

You should seek professional advice from your accountant and/or solicitor to maximise your return and minimise taxation.

Large amounts of debt often create stress. 

You must be able to 'pass the sleep test'...you must be comfortable with your level of borrowing and be able to sleep at night.

There is a risk, albeit small, that housing values will fall and therefore you will be stuck with high debt levels on a reducing capital asset value.

You can minimise this risk by doing your research prior to purchase.

There is the risk of interest rate increases which increases your monthly loan commitments.

Prior to purchasing investment property you should ensure your debt levels are manageable.

Your initial calculations should factor in interest rate increases - we always factor in a potential 1.0% to 1.5% interest rate increase.

 

Good debt and bad debt

We have already defined debt as money borrowed.

However we now need to distinguish the two types of debt.

Good debt - refers to money borrowed for the acquisition of assets.

In other words good debt allows us to acquire things that will generate income and/or increase our net worth, eg borrowing to purchase quality real estate.

Bad debt - refers to money borrowed for the acquisition of liabilities.

In other words bad debt allows us to acquire things that neither generate income nor increase net worth.

In fact bad debt does the exact opposite to good debt.

"A wise man learns by the mistakes of others, a fool by his own"  Latin Proverb

 

We've made many mistakes over the years AND we've learnt from those mistakes.

Remember, one way or another you will pay for your education...either by making mistakes and paying BIG TIME OR hiring someone who is already successful and learning from their mistakes.

The later is much quicker and safer AND that is what we do.

 

We would love the opportunity to discuss how we can help you build wealth in a low risk environment far more quickly than you ever thought possible. Call our office now on 1300 507 559 or simply drop us an email info@yourpropertybuyer.com.au and we'll arrange for a free no obligation discussion.

Here's to your property investing success!

 

Want to learn more? Get your free 10 DAY PROPERTY INVESTMENT MINI-COURSE straight to your inbox:

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Garry lives on the sunny Gold Coast in Queensland with his wife and two children. Garry is a business man committed to helping other achieve their financial goals.

Garry and the team at Property Buyers Australia are excited to announce thier new Virtual Buyers Agent service designed to provide sound analysis to ensure you buy the right property in the right location at the right price. Check it out here.

 

Leverage What?

Source: www.heatherforsenate.com/

Post by Garry Macdonald of Property Buyers Australia

 

What Is Leverage?

The Macquarie Dictionary defines leverage as the action of a lever...power of action, means of influence.

One of the issues that serious investors must come to grips with is the concept of creating leverage. Debt facilitates leverage. 

Leverage is the use of other people's money (OPM) to enhance your ability to build wealth. In the case of real estate investing, leverage is facilitated by financial institutions (banks, building societies, etc).

Your Choice To Borrow Other People's Money

Our parents always told us to buy a house and pay it off as quickly as possible...owe nothing to anyone.

Paradoxically, there are very few people in the world who possess sufficient cash to be able to purchase real estate without borrowing money. 

We are therefore left with a choice: to borrow (and therefore incur debt),  or not to borrow (and therefore not incur debt).

Prior to making this choice, bear in mind that choosing the latter (not to incur debt), will very likely have a significant impact on your ability to build wealth.

Provided you consult your professional advisors, carry out the necessary research and buy well, it is recommended that you utilise OPM.

 This enables you to both purchase more real estate and increase your 'cash on cash' return (ie the investment return on the cash you outlay).

Applying For A Loan

When you apply for a loan there are fundamentally three criteria that most financial institutions consider:

1. Serviceability - this reflects your capacity to repay the loan.
2. Loan to Valuation Ratio (LVR) - refers to the amount of security you have. 
3. Credit History - your history of borrowing and repaying is maintained on a data base with organisations called credit bureaus. 

 

Financial institutions will have a set of well established criteria based on the above that you must satisfy.

You will find however, that as you develop a positive, longer term relationship with financial institutions and prove that you are capable of managing your property investment business, most financial institutions tend to become a little more flexible.

You should always remember however, that financial institutions are required by legislation to ensure they act responsibly when lending.

"Money isn't everything but it's a long way ahead of what comes next"  Sir Edward Stockdale

 

Next week, we'll consider some of the advantages and disadvantages of leverage. 

 

If you would like to discuss your property investment options and how we can work with you to ensure you achieve financial freedom in the shortest possible time while minimising your risk, drop us a line at info@yourpropertybuyer.com.au or call our office on 1300 507 559 and we'll arrange a convenient time to identify and discuss your property buying options.

 

Here's to your property investing success!

 

Want to learn more? Get your free 10 DAY PROPERTY INVESTMENT MINI-COURSE straight to your inbox:

Name:

Email:

Next step: Check us out Facebook and join the discussion!

 

Garry lives on the sunny Gold Coast in Queensland with his wife and two children. Garry is a business man committed to helping other achieve their financial goals.

Garry and the team at Property Buyers Australia are excited to announce thier new Virtual Buyers Agent service designed to provide sound analysis to ensure you buy the right property in the right location at the right price. Check it out here.

 

We've Found The Holy Grail And It Starts With An 'R'

Source: www.moviefanatic.com

Post by Garry Macdonald of Property Buyers Australia

Reasearch, reasearch, reasearch!

Nothing sets you up for a wrong turn in property investing better that not doing your homework. There are many valuable resources available to property buyers and investors. This week, we're sharing our favourites with you!

Residex

The Residex 'Top 100 Postcode Predictions' and/or the 'Best Rent Report' (preferably both). We've found these reports to be extremely valuable investments and quite accurate. 

Use these reports to help establish the median (middle) price for properties in that post code and buy at, near or under the median price.

Be aware that you need to conduct your own research into specific areas - don't just rely on Residex (or any other) Reports. 

Subscriptions

Subscribe to Australian Property Investor Magazine AND Your Investment Property Magazine.

We recommend you subscribe to them both because they provide enormous amounts of valuable information for minimal cost.

Hotspotting

Terry Ryder's Hotspotting Reports - Terry is a well credentialed and respected property investor and researcher.

The various Hotspotting reports are very thorough and provide invaluable information about specific locations.

Due Diligence

Carry out due diligence (research) by visiting the location, drive around to get a feel for the area and watch how quickly 'For Sale' signs go up and come down.  Contact a number of real estate agents in the area to confirm that the asking price is around the median (middle) price range and check the median price for the area on your Residex report.  

Proximity to amenities

Notice how close the property is to amenities such as schools (families are reluctant to up-root their children), transport, shops, jobs, café's, universities, hospitals, etc.

Future Developments

Look for infrastructure development. Where government is developing or proposing to develop roads, parks, schools, shopping centres, etc., this usually provides a strong indication that people will move into the area which results in increased demand for property.

There are also many other valuable sources of research available...no doubt you will find your favourites as you continue investing.

"Research is cheap if you want to stay in business, expensive if you don't" Anon

Here's to your property investing success!

Garry lives on the sunny Gold Coast in Queensland with his wife and two children. Garry is a business man committed to helping other achieve their financial goals.

Garry and the team at Property Buyers Australia are excited to announce thier new Virtual Buyers Agent service designed to provide sound analysis to ensure you buy the right property in the right location at the right price. Check it out here.

Want to learn more? Get your free 10 DAY PROPERTY INVESTMENT MINI-COURSE straight to your inbox:

Name:

Email:

Next step: Check us out Facebook and join the discussion!

 

The Secret Of Success Is To Know Something Nobody Else Knows

Source: wedetectives.com

Post by Garry Macdonald of Property Buyers Australia

Success is based on knowledge and knowledge is based around self-education and a process of continuous learning. So let's have a closer look at the concept of success, bearing in mind success means different things to different people.

Non-negotiables For Achieving Success

Education

Start learning and never, ever stop - education can be gained either formally (via TAFE, University, etc) OR informally (via the University of 'Real Life') by attending seminars, workshops, reading relevant magazines and books.

Gain an understanding of basic economics - particularly the fundamental concept of demand and supply - when demand exceeds supply, prices increase AND when supply exceeds demand, prices decrease.

Dedication

Be consistent and persistent - never give up. Most folks give up when they are very close to success. It is not how often you get knocked down that matters, it's how often you get back up.

A Mentor

Find a Mentor - someone who has achieved OR is well on their way to achieving precisely what you want to achieve. Finding a good Mentor is the most difficult thing to do BUT great Mentors are around - if you have to pay someone to mentor you, provided the person is genuine, it is well worth it..

Taking Action

Act - many folks fail to achieve simply because they never take action. They spend weeks, months and even years learning and preparing for success BUT (mainly due to fear), never take action. As we say: 'all your ducks will never line up BUT there comes a time when action is required'.

I mentioned above that we do offer mentoring BUT only to those folks who are seriously committed to move forward and wish to 'go to the next level'. Financial independence is achievable AND it is not difficult when you have someone guiding you each and every step of the way.

Flick us an email now info@yourpropertybuyer.com.au and we'll contact you to arrange a free no obligation discussion about how we can help.

 

"Education is learning what you didn't even know you didn't know"  Ralph Waldo Emerson

 

Here's to your property investing success.

Garry lives on the sunny Gold Coast in Queensland with his wife and two children. Garry is a business man committed to helping other achieve their financial goals.

Garry and the team at Property Buyers Australia are excited to announce thier new Virtual Buyers Agent service designed to provide sound analysis to ensure you buy the right property in the right location at the right price. Check it out here.

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