Our property investment strategy is to buy and hold property in a good location, manage our cash-flow so we can hold the portfolio for the long-term and see our wealth build as property values increase.

Understanding gearing is an essential part of this strategy. Gearing enables us to continue to buy investment properties.

I’ll work through an example to explain the concept.

Let’s say your home is valued at $400,000 and you have a loan of $320,000. Your property is 80% geared, calculated as $320,000 divided by $400,000 multiplied by 100. This means you own 20% of the property, and your lender owns 80%.

Many lenders feel confident with this level of gearing. If you got into financial difficulty and had to sell your property, the property would have to drop in value by 20% before the bank would not get all the money they loaned you back. This is a risk many lenders are comfortable with. You should speak to your Mortgage Broker or financier to find out their specific lending rules.

Gearing is a very powerful strategy that enables you to continue buying properties as property values increase, and/or you pay down the loans.

Let’s continue the example based on the strategy we followed.

Year 1:
– Purchased the home we live in.
– Focused on paying down the home loan.
– Aim was to pay off the non-tax deductible debt as quickly as possible.

Year 3:
– Purchased our first investment property.
– Combined gearing of both properties: 80%

Years 4 – 7:
– Continued paying off the home loan, with the aim of paying off non-tax deductible debt.
– Got educated on property investing by attending seminars, completing property investment programs, reading books, listening to CD’s, subscribing to property investment magazines and spending weekends researching the property market.
– Got educated on the best type of finance and legal structures to buy property in.
– Building equity in our two properties as we payed down the non-tax deductible debt and property values increase.
– Level of gearing dropped to approximately 50%.
– Developed our property investment strategy, property investment checklist and risk profile.

Year 8 – 10:
– Bought a number of investment properties.

Ongoing:
– Continue to buy properties in accordance with our property investment strategy and checklist.
– Monitor our progress using our personal Balance Sheet and Cashflow Statement.
– Maintain gearing at 50%.

This isn’t a strategy that will suit everyone. I am a conservative investor with a low tolerance to risk. I prefer our gearing to be Levitra Professional as low as 50%.

Some people will see 50% gearing as missing opportunities. For example, if your lender is happy with gearing of 80%, and you are only geared at 50%, this means the lender may be willing to loan you more money to buy additional properties.

Only you know the right gearing percentage Brand Viagra for you. It must be aligned with your investment strategy and risk profile to ensure you can sleep at night.

Author Bio: Suzie Crawford works with people who are tired of working for others and want expert guidance on how to make money through property. Register here for free 8-week online Training Program PLUS receive bonuses to the value of $162. http://www.youcan.com.au

Category: Finance/Real Estate
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