Leveraging finance for property finance

Financial leverage refers to the use of borrowed money such as a loan or mortgage to acquire a property. This means that you acquire an asset or property using a debt that you will be servicing. The debt can either be enough to acquire the property or it can be supplemented by personal savings. With financial leverage, you aim to use other peoples’ money to increase the potential return on your investment.

Property investment is often desirable to financial lenders because even if an acquired property is dormant for a while, it still retains its land value, which works as collateral for the financial lender. On the flip side, leveraging finance for property finance requires a potential investor to be realistic about the potential returns on the investment they are making.

If you are considering to acquire property using leveraging finance, here are a few points that you should consider:

·         Always adhere to the basic principles of property investment. The most important principle dictates that you should always try to buy a property at a discount. You also need to ensure that you have positive cash flow after deduction of all costs. It is also important to undertake due diligence on the property before purchase and always have a cash buffer just in case of an unexpected breakdown.

·         You should be realistic in your expectations. You should undertake prior research to have an accurate understanding of the expected returns on your property. In this case, it is always wise to work with theworst-case scenario to calculate the viability of your investment.