Why Real Estate Investing?

The benefits of leverage

When you buy an investment property you get capital growth on the entire value of the property. (Capital growth is the increase in the value of your investment property over time.) You pay a deposit up front (some investors can buy without a deposit!) and a small amount each week.

Here's how a leveraged real estate investment works:
Suppose you buy an investment property worth $400,000. You choose to pay a 10% deposit and borrow the rest at a investment mortgage rate of 7.5%pa over 30 years.

Your initial investment, the deposit, is just $40,000. You'll receive rent each week, but you'll have to pay interest on your loan and some other costs. You'll also pay less tax. So your investment property may cost you $97 per week. (net - after rent in and costs out). Over 5 years the property will have cost you $40,000 + $97 x 52weeks x 5years = $65,220. Suppose residential property prices increase by 6%pa for 5 years (the real average long term real estate price growth in Brisbane is much better - around 9%pa)

At the end of 5 years your investment property will be worth $535,290 and you will owe the bank $379,748. You will have equity of $155,542.

You've invested $65,220 for equity of $155,542. You've made $90,322 over the five years.

Compare an investment where there is no leverage - a bank account or similar. Suppose you invest exactly the same amount of money: $40,000 up front and then $97 per week. Suppose the return is also 6%pa. At the end of 5 years the value of the account will be $94,645. You will have invested $65,220 and only made $29,425

In this example, the leveraged property investment is around 3 times as good as the bank account. And it gets better over time - after 10, 20 or 30 years you are way in front.

An investment property outperforms other forms of investments because you are getting capital growth on the total value of the home, not just on the money you have put in. That's the power of leverage.

Our licensed Consultants can give you some more accurate numbers to match your particular situation.

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