All Topics / Finance / Explaining the Power of Leverage
Was talking to my brother in law via e-mails..
How does this sound for explaining the Power of Leveraging through Property.?
ONE
You buy an asset for $5000 using your own money and it increases in value by 10% in the first year, yielding a paper profit of $500, therefore Return ($500) on Investment ($5000) is 10%.TWO
You buy an asset for $100,000 using $5,000 of your own money and $95,000 of someone else’s (a Bank) and it increases in value by 10% in the first year, yielding a paper profit of $10,000.
Your Return ($10,000) on Investment ($5,000) is now 200% or 20 times more than in the first scenario even though your contribution was exactly the same in each scenario ($5,000) of course you can extrapilate these figures out but this is just the basics of leverage through property“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculatorhi redwing
factor in vendor finance
the difference between what the vendor wants and what the vendor owes and leverage off the difference
and if possible don’t put anything in the deal at all and then look at the return.
you can if you work the numbers right get a 200% return within 12 months.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]grossrealisation
such a brazen statment….200% in 12 months
its beyond belief
can you enlighten us ,that are untrained, in this effortless technique of accomplishing such prosperityI reckon REDWING was trying to assess whether the simplified explanation was going to be understandable to the novice.
YES it is able to be understood I think.
Of course the big problem in trying to explain leverage to the novice is their pre conceived ideas of RISK, INTEREST COSTS, RISK, WHAT THEIR RELLOS WILL THINK< RISK< AND RISK.
Most people are just scared.
I always think it is difficult to do anything worthwhile once you are in the grave. Do it while you can.[fez]Giddo
http://www.standrewsplace.com.auKNOWLEDGE IS POWER
That’s very interesting Redwing, would like to hear more about that!
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Interested in Joint Venture Reno ProjectsOriginally posted by hb:grossrealisation
such a brazen statment….200% in 12 months
its beyond belief
can you enlighten us ,that are untrained, in this effortless technique of accomplishing such prosperityHB, Just imagine if he borrowed 99%, ie 4% off the vendor and 95% off the banks. This would make the % return much higher because of the reduced amount started with. A high COC return doesn’t necessarily mean it would be a good investment.
Terryw
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Redwing,
I agree with the old saying “a picture says a thousand words”.
If I was explaining leverage to a novice of property financing, I’d remove both the property side and the finance side and just stick to the leveraging bit and show them a picture of a big guy trying to lift up a big rock….can’t do it without a hernia.
Next show a little baby sitting on a long fulcrum, moving the large object without even knowing it.
Explain the following ;
1. Big rock is the property.
2. Fulcrum or stick is the bank loan.
3. Baby’s weight is the newbies deposit funds.
4. Big guy having the hernia is the guy working 24/7 trying to pay cash.Once that is understood, they’ll have a good grasp of the basics.
I used to get completely bamboozled by all of the terminology….another language in fact. New guys brains simply switch off to the concepts and stress that they are being left behind as the terms baffle them.
Of course, some clowns use the terminology to deliberately confuse and confound the newbies, mostly in the hope of getting them to sign up to whatever it is they are flogging at the time.
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