All you need for a beautiful bathroom - at affordable prices

Advertise Your English Rental Property simple, effective and affordable marketing online!

Calculate how much you can earn - rent out your UK holiday home here

UK property insurance from intasure - Click here for great deals and up to 40% risk related discount on UK & overseas insurance


It’s All About Gearing

As we never tire of saying, gearing is the one thing that puts property investment, in the medium and long-term, streets ahead (pun fully intended) of other forms of investment.

So what is gearing?

In fact what is really important about gearing is not what it is, but what it allows you to do!

Gearing is the way that property financing can allow you to do more with less.

Let’s take an example. The actual numbers are not important. It doesn’t matter whether you have £1,000,000 to invest or £10,000. What’s important to grasp is the principle of gearing and how it can be used.

Let’s say you have £10,000 to invest.

You consider three options – leaving it in an online bank paying perhaps 5 per cent interest year; investing it directly (and wisely) in the stock market and getting a yearly 10 per cent return; or using it as a 20 per cent deposit to buy a property with a sitting tenant and a yield of 8 per cent.

Which is the most lucrative option? On the face of it, the stock market looks the best. But this is where gearing comes in to skew the picture in favour of the property – big time!

Let’s work each one through using simple, rather than compound, interest.

The Bank

20,000 x 4% = 20,800 after 1 year.

Gain - £800

The Stock Market

20,000 x 10% = 22,000 after 1 year.

Gain - £2,000

The Property

20,000 used as a 20% deposit on a 100,000 property

The yield is 8% x 100,000 (NOT 10,000) = 8,000

Gain - £8,000

Even after costs are deducted, the property’s return is still spectacularly better than the other options. And this is taking no account of the possibility of capital growth. If the property increases in value by 5 per cent in your first year of ownership, then you can add another £5,000 on to make your gain £13,000.

The concept of gearing is where you use your money to take control of an asset with a value far greater than you have at your disposal.

Copyright © Property Secrets 2007

“Property Management Secrets”
Reproduced with the permission of Property Secrets.

Further information on this topic can be found in “Property Management Secrets”

For extensive, regularly updated information about UK and Overseas property investment and to purchase this book, go to http://www.propertysecrets.net


More pages

Page 1:

UK property insurance from intasure - Click here for great deals and up to 40% risk related discount on UK & overseas insurance

Discounted hotel rooms in the UK - click here for Laterooms special offers

Advertise Your English Rental Property simple, effective and affordable marketing online!

UK Investment property from just £34,500 High-quality student rooms in an emerging market with 10% net yield guaranteed

All you need for a beautiful bathroom - at affordable prices

Holiday homes to rent - across the UK & Ireland

Calculate how much you can earn - rent out your UK holiday home here


Browse our articles written by leading industry experts:

Overseas Property Buying Guides

UK Property Guides

Gardens and Interiors

Cosmetic Surgery Fact Sheets

Looking Good Guides

Money

Business

Community

Travel