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Property Entrepreneur. Wong Vincent
Читать онлайн.Название Property Entrepreneur
Год выпуска 0
isbn 9781119327509
Автор произведения Wong Vincent
Жанр Зарубежная образовательная литература
Издательство John Wiley & Sons Limited
In the past, mortgages weren't too hard to get and properties were affordable. Most professional people with a clean credit history could get a mortgage. People were able to save up for a deposit, or some might have had help from their parents. Once you had a deposit, you'd talk to your mortgage broker or lender and, depending on how much you qualified for, you'd go and look for properties in your price range. You might have chosen to buy a property in need of refurbishment and spent your own time doing it up in order to add value to it. You might have chosen to buy a property with more than one bedroom and rented out the other rooms to help you cover your mortgage repayments, becoming a live-in landlord.
The point is, whichever way you got onto the property ladder, it really wasn't too difficult. However, as I will come to show, for most people, this model simply doesn't work anymore.
Before we look at what does and doesn't work, let's look at two important principles that any serious property investor needs to understand: the principle of leverage and, related to this, the myth of ownership.
The Principle of Leverage
The ancient Greek philosopher and mathematician, Archimedes, said, “Give me the place to stand and I shall move the earth”. He was demonstrating the principle of leverage by explaining that if you had a long enough lever and a place to put a fulcrum, you could lift the earth.
In other words, if you've got enough leverage, you can do anything! Leverage is about finding the path of least resistance. Finding the place where you can put in the minimum effort to get out the maximum results. Apply this to property and we're talking about how little of your own money you can put in to get the most out (by selling for profit or renting out).
In our daily lives I believe most people don't think nearly enough about leverage. Even when moving furniture around the house, people just go ahead and do it without thinking of the best way to do it. They just bend down, pick something up and run the risk of injuring themselves in the process. In the same way, I watch many property investors put their money into property without thinking through all the possible ways in which they could do it. For example, if you bought a house using all cash (whether yours or someone else's) and then you had to put in a lot of your own effort and money, maybe to refurbish it, after which you made a small amount of profit, then that is not good leverage.
Let's look at a real example to show how leverage works. Let's say you have £250,000 in cash to spend. You could buy a property for £250,000 outright. Now let's say that you sell it two years later for £275,000. You've made a profit of £25,000, and that represents a 10 % return on your investment over two years. But your entire pot of £250,000 was tied up in that property, unable to be used for any other investment over the time it took for that property to go up in value.
Now let's say that instead of putting in £250,000 of your own cash, you use £200,000 of someone else's money (a loan) and only £50,000 of your money. Again, after two years you sell the property for £275,000, so you've made a profit of £25,000, but this time the profit represents a 50 % ROI (return on investment).
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