Do you know what leverage is?
If you want to be wealthy and experience
the freedom you desire then you need to know what it is and use it to your
I have been doing this for many years as a
And you need to use it too in your property
So what is Leverage?
If you have come across the term “leverage”
before you can be forgiven for thinking that this only applies to money. There
are in fact a number of different forms of leverage. I will discuss some of
these in this post.
The best way to describe leverage is that
you can make a lot happen with just a little. Think of a plank of wood being
able to move a very heavy object when it is on a pivot. When you use leverage
you can make things happen really quickly.
The bottom line is that the more leverage
you have the quicker you will become wealthy.
Leverage with Money (using Other People’s Money)
As a successful property investor I use
this strategy all of the time. I borrow money from others at a particular rate
of interest and then I make a greater return from investing in property.
By using leverage with money you may think
that I am just taking on more debt. While this is true I am using this debt to
make a gain. It is a smart use of debt. Maxing out your credit cards to buy
things that you will never make a return on is not a smart use of debt.
The way that you invest the money that you
have available to you will determine how wealthy you will become. Most people
do not use their financial leverage in a way that will make them wealthy. They
borrow money to buy cars and other things that do not appreciate in value. They
do not use a focused leverage strategy to build wealth.
A shrewd property investor never looks at a
property and thinks “can I really afford to buy it?” Instead they will think
“what is the best way for me to use the leverage at my disposal that will
provide me with the best return using this property?”
Some people are just opposed to borrowing
money. They believe that saving is the best way to become rich. But in order to
become rich from savings you need to have a significant amount of money to
start off with. This is not a situation that most people find themselves in.
The thing to remember is that if the total
return on an amount that you invest consisting of some of your own money and
some money you borrowed) is greater than the interest you are paying on the
borrowed amount then you will profit from this.
When you use leverage you will not affect
the percentage rate of return. So if you invested £100 at a 15% interest rate
you would earn £115. However if you invested £1,000 at the same 15% interest
rate you would earn £1,150. I think that you would agree that there is a
significant difference between a profit of £15 and £150.
In property investment terms building a buy
to let portfolio is a great example of leverage. You purchase your first
property by using your own cash as a down payment and borrow the rest. You rent
it out at a 10% per year annual return. After a while the equity builds up in
this property and you can use this to secure the mortgage on your next buy to
In a few years you have several properties
providing you with a significant monthly income and of course you still have
the properties as assets. Many property investors do this and create a
portfolio fast and build their wealth. The income rental from the properties is
higher than the interest on the loans and other costs.
Apart from your initial cash down payment
you have used other people’s money or leverage to get to this position. You
will build your wealth much faster when you use a smart leverage strategy and
property investment is the perfect way to do this.
Let’s take a look at some other forms of
Other People’s Time
I have said on many occasions that your
chances of success in property investment rise significantly when you have the
right team supporting you. You only have 24 hours each day and you have to
sleep for a number of hours. The only way to get more time is to use other
Let’s say that you need to renovate a
property that you have recently purchased. If you have the skills to do this
yourself then you could do that but is it the best use of your time? In my
opinion it certainly isn’t.
While I will need to pay some competent
trades people to perform the work for me I free up my time to make even more
money. I can focus on my next investment project while other people are
spending their time improving one of my assets.
You need to treat your time as the most
precious commodity that you have. While you can always make more money it is
not possible to get time back. So employ experts to take care of your
renovations, accounting, legal and other aspects of your property investment
I have my own team of employees that are
prospecting all of the time for new opportunities and implementing projects to
make significant returns. Yes I have to pay them for their efforts, but I could
never do the same amount of business on my own.
When you are just starting out it is often
the case that you will have to do a lot of things yourself because you do not
have the financial wherewithal to get others to do it for you. This is OK and I
started out this way too.
But I always had a plan to leverage other
people’s time as soon as I was in a position to do that. Don’t think of using
an outsourcer or employing someone as an expense. See this as providing you
with even more leverage on your journey to wealth.
Other People’s Knowledge and Experiences
Using other people’s knowledge and
experience is another powerful form of leverage. If you think about it you are
leveraging my knowledge and experience right now by reading this post.
I would never recommend that you try to
make it in property investment on the basis of trial and error. There are so
many ways that you can leverage the knowledge and experience of others to be
more confident of achieving your goals in the fastest possible time.
One of the best things that I ever did was
to get a property investment mentor. This cost me quite a bit and it was a
struggle when I first started out but the advice I received was priceless. I
can say the same about most of the seminars I have attended and the training
courses and books I have purchased on the subject of property investment.
Other People’s Ideas
This is closely related to leveraging other
people’s knowledge and experience. An experienced property investor sells you a
training course that contains some great income producing ideas. You then use
these ideas to build your wealth.
A successful franchise like McDonalds is a
good example of leveraging other people’s ideas. You are presented with a time
tested and proven idea that will make you a significant return on your
Use Leverage to your Advantage
Now that you understand the power of
leverage and how it can make you wealthy faster you need to start using it to
your advantage. Start by using other people’s money to build your property
Then you can move on to leveraging other
people’s time by employing people to uncover new opportunities for you and
implement them. Be committed to leveraging other people’s knowledge and
experience all of the time.