Leverage is the Key to Ongoing Success
I’m sitting up here in sunny Queensland and it’s raining “cats and dogs”. A couple of years ago, when my husband John and I were running our farm, rain was a major concern to us. It may have been too much, too little, in the wrong area or simply at the wrong time. The weather conditions were one of the many risk factors we endured, which brings me to the REASON why we eventually decided to switch our focus to residential property investment. It can be summed up in one word…
LEVERAGE!
What do I mean by leverage? My definition is "the ability to do more with less!”
Farming is a business like any other. Because it’s a commercial activity, it is subject to commercial lending criteria by the banks, who see it as higher risk for a multitude of reasons, weather conditions, being one of them. Lenders will not usually allow you to leverage against commercial property as highly as residential property for the simple reason, commercial is viewed as having a higher risk (so they typically only lend up to 70%), and residential property is seen as lower risk (so in some circumstances they lend up to 100%). As I have learnt leverage is the ultimate key factor to successful investing, thus giving residential the decided advantage
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In 2002, we were only allowed to borrow 50% against our equity in the farm, leaving 30% or more sitting there, not being allowed to be utilized. We also had many thousands of dollars tied up in unencumbered machinery and livestock which we couldn’t borrow against either. We were to learn that all of this was a huge ongoing opportunity cost to us.
With the 50% available, we went out and purchased as many properties as possible. We leveraged our Farm Line Of Credit (LOC) to use just as 20% deposits on each purchase, thus growing our GOOD debt as quickly as possible.
It was during this time, that it was like a light switched on, the penny dropped, we had an awakening, call it what you want. As the properties were going up in value, John and I were now understanding the true meaning of debt leveraging and just how powerful it could be.
We were sitting on a commercial enterprise, working physically hard (we’re all conditioned that is the way to get ahead) and had all this equity locked up, restricting us from leveraging further, and moving ahead at a much greater pace and with less risk. We were a perfect example of what I’d been reading about in books. They all say, the ONLY difference between being successful (in all aspects of life) or not, is one’s MINDSET.
As this realization crystallized in our mind we decided to sell the farm. We were able to unleash so much more equity, investing it into more consistently appreciating assets, being residential property, giving us the capacity to move ahead as I suggested before, at a much faster and safer rate.
Twelve months ago we decided to move to the Sunshine coast. Here we have looked and found several opportunities where we’ve been able to adopt some strategies that have leveraged our capacity by using little of our own and sometimes fellow investor’s equity.
I’ll give you a couple of examples;
Last year local developers gave us an opportunity of purchasing all twenty-six blocks in a gaited community, half an hour North of Brisbane. We negotiated and they offered us five year’s vendor finance on a portion of the completed individual land and house packages. Which meant that most of the investors involved in the deal only had to outlay enough to cover the stamp duty plus set up costs! We incorporated the Investors Direct Cash Flow Mortgage onto a large percentage of these, making each deal even easier to service.
Currently, we and some fellow investors are building on several more blocks in Buderim, situated on the Sunshine Coast. Once again we have utilized various leveraging strategies, to ensure that we and our investors are using as little of our own funds as possible. One of our key aims is to keep locating these leveraging opportunities for ourselves and our clients whenever possible.
Since starting our business, Harvesting Houses, we have had many friendly and enquiring emails from many places. We have had enquiries from as far away as Victor Harbour in South Australia, Tenant Creek in Northern Territory right up to London in the UK! We have discovered that people have so many different and varying ideas on how and where investing should or shouldn’t take place.
Most of the enquiries we receive are for property sourcing and yet when I speak to some about finance, I’m often finding that many people out there have a general lack of equity finance understanding. In particular, they don’t understand how debt works. This lack of understanding means many of the people I talk to about investing have a real fear of all debt in general. This is then coupled with not knowing how to apply and utilize debt to one’s best, wealth creating advantage.
I believe this is stopping many people achieve what they are capable of. We know that it can be overcome through education. In my experience it is only through learning that you can in turn change your mindset. John and I really want to help our friends, family and clients achieve their full potential when it comes to property investing and creating wealth for themselves and their families. We want to help people in a practical sense by sharing what we have learnt, which is why we started our Harvesting Program
Being professional property investors now and being really close to the market, in our opinion, 2007 represents a better than usual opportunity to enter the South Eastern Queensland property market. Whilst much of Australia is experiencing historically low rental vacancies, no other market in the country has such a significant shortfall of property while simultaneously experiencing such large population growth.
It’s all about supply and demand. Here we have severe short housing supply coupled with ongoing huge population demand. In our opinion, house values in South Eastern Queensland can only do one thing!
Until next time all the best with your investing!
For more details about what we have to offer go to www.harvestinghouses.com.au
Thought for the month: Your greatest asset is your mind.
Marg Turner
Harvesting Houses
Sunshine Coast, Queensland
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