Benefits of Borrowing When It Comes to Property – Paul Mahoney
Paul Mahoney: Hi, I’m Paul Mahoney, managing director at Nova Financial. As many of you all know, we’re a property and financial advisory company. Today I’m going to talk to you about the benefits of borrowing when it comes to investing in property. When you buy property, you really have two options. You can buy cash, or you can buy with leverage, which is generally in the form of a buy, select mortgage.
The major benefit of property, in my opinion, is really in that leverage. The fact that you can borrow at low-interest rates over the long term at relatively high loan to value ratios and in most cases, the bank even has no ability to recall that mortgage, even if your property were to go into negative equity, and therefore, over the long term, and as we know, property tends to trend upwards. You’re able to accelerate your returns through that leverage.
Now there is an extra level of risk there. You need to be investing in properties that you’re very confident will rent all the time, because the rent is what covers your serviceability of the mortgage. However, let’s say, for example, you achieve a relatively average five percent growth per annum from your property and you’ve taken a 75% mortgage, well that’s a 20% return on the cash that you’ve applied. 20% return plus the rent that you’re achieving is a very strong return.
That’s really what gives you the ability to better utilize your money. If you’re interested in exploring this or looking at some options or how this might apply to you, then feel free to get in touch.
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