Real estate makes more billionaires than any other asset class. But what makes it such a worthwhile investment?
The answer, according to Rocket Property Group Founder Ian Hosking Richards, is leverage. Mr Richards explained what leverage is all about.
“For example, if I purchase a property for $400,000 I can put down a 10% deposit and borrow 90% from the bank,” he said.
“If that property increases in value by 10% I have made $40,000, because I have only contributed 10% of the purchase price but I get 100% of the growth.”
“So if it [property] goes up in value by 10% in the first year I have effectively received a 100% return on my initial deposit,” he said.
“And if the original deposit and other buying costs came from my existing equity, it means that I have borrowed the full cost and do not need to put any of my own cash in, but [I] still get 100% of the growth.”
Mr Richards recommends purchasing a property with great growth potential, which will pay for itself, even on high borrowings.
“For me, it is hard to imagine any other investment that is more attractive.”
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