Building Blocks of Wealth: Crafting Your Financial Bedrock 🏦
Growing your property portfolio doesn’t have to mean a constant cycle of saving. By leveraging your existing investments, you can watch your wealth multiply without draining your bank account. Let’s delve into the secrets of accumulating properties without relentless saving and understand the power of leverage in property investment.
Accumulating Properties Without Constant Saving
Imagine you’re purchasing your first property valued at $400,000 with a 90% loan of $360,000. You’ve managed to gather a $40,000 deposit plus an additional $20,000 for costs such as stamp duty, legal fees, LMI, and inspections.
Understanding the Costs
Here’s a breakdown of the costs involved in buying a property:
- Property Value: $400,000
- Loan Amount: $360,000 (90% of property value)
- Deposit: $40,000
- Additional Costs: $20,000
Leveraging Your Investment
Once you’ve secured your first property, the good news is you don’t need to save for another deposit. Instead, as your property’s value increases, so does the amount you can borrow against it. This is known as the Loan to Value Ratio (LVR).
Understanding LVR
The LVR is calculated by dividing the loan amount by the property’s value. In this case: $360,000 Ă· $400,000 = 90%.
Now, let’s assume your property’s value increases to $500,000 while the mortgage remains at $360,000. An LVR of 90% raises the borrowing limit to $450,000.
Utilising Equity
With a $360,000 mortgage on a property now valued at $500,000, you have a borrowing limit of $450,000. This leaves you with $90,000 of available equity, which can be used as a deposit for a new property.
The Snowball Effect
The first deposit is undoubtedly the hardest to save. However, once you’ve made that initial investment, your properties begin to work for you. As property values rise, you can leverage the equity in your existing properties to fund additional investments. This creates a snowball effect, gradually growing your portfolio.
A Slow and Steady Approach
This strategy isn’t a get-rich-quick scheme; it’s a get-very-rich-slow scheme. Successful property investing requires patience and a consistent application of these principles. Start today to avoid looking back in 20 years, wishing you had taken action.
Stay Tuned
Next, we’ll explore the 3 Golden Rules for property success! Join our weekly webinars for in-depth discussions on property investment strategies, tips, and more. Our experts will guide you every step of the way.