* * * Why invest in Property?

There are lots of ways to make money and some people would argue that real estate investing isn't really that easy. Last month we looked at lots of great reasons why you should invest your money in Property in Part 1 and this month we have even more great reasons why you should invest in property...

6. You Can Buy It With Someone Else's Money
I will let you in on a little secret. The return you get on real estate if you pay for your purchase using all cash (without getting a loan) isn't much higher than what you can achieve with other types of investments.

Of course, with real estate you usually don't pay using raw cash; instead you use someone else's money to buy your properties. That is, you put down a small deposit, often 20%, and the bank finances the rest. This is called leverage.

Archimedes said, "Give me a lever and I'll move the earth." As investors we don't want to move the earth, we just want to buy as much of it as we can!

The ability to use leverage with real estate significantly increases the amount of profit you can make and, importantly, it allows you to purchase a significantly larger investment than you would normally be able to.

Because of its history of security, stable income and proven capital growth, residential real estate is regarded as a prime security or collateral for loans, which means that banks may lend you as high as 90% of the value of your property.

They won't lend this proportion on other types of investments. If you buy shares in the banks themselves, the banks may only lend you 65% of the value of their own shares, and they only lend 70% or so of the value of commercial properties. This makes residential property an appealing vehicle for building wealth.

In the technical sense leveraging, or gearing as it is also known, means using a small effort to move a large object, like the gears on your bicycle where you have to pedal a small rotation to turn the large back wheel.

In the financial sense, leveraging is using a small amount of money to control a large asset. You do this by borrowing money and mortgaging your property, and using this borrowed money to invest in a larger asset.

The more highly you are geared, the more money you have borrowed, and the lower your invested capital in relation to your borrowings.

As you can see from the examples in the table above, the higher the degree of gearing, the more leverage you achieve and the more your returns are magnified. But be warned, gearing not only magnifies your profits, if the value of your investment falls, your losses are magnified as well.

7. You Are In Control
Property is a great investment because you make all the decisions and have direct control over the returns from your property.

If your property is not producing good returns, then you can add value through refurbishment or renovations or adding furniture to make it more desirable to tenants. In other words, you can directly influence your returns by taking an interest in your property and by understanding and then meeting the needs of prospective tenants.

8. Tax Benefits
These are so important that we have have a number of different articles on this in series, so we'll skip over explaining them here.

9. You Can Add Value
There are hundreds of ways you can add vale to your property, which will increase your income and your property's capital value. These include little things like giving it a coat of paint or removing the old carpet and polishing the floorboards underneath. Or you could do major renovations or development works.

10. You Don't Need To Sell It
Unlike most other investments, when real estate goes up in value you don�t need to sell in order to capitalise on that increased value. You simply go back to your bank or mortgage broker and get your lender to increase your loan.

11. Most Forgiving
Even if you bought the worst house at the worst possible time, the chances are good that it would still go up in value over the next few years. History has proven that real estate is possibly the most forgiving investment asset over time. If you are prepared to hold property over a number of years, it's bound to rise in value.

There's really no other asset class quite like property!

This article is courtesy of Michael Yardney of Property Update

If you missed it - Part 1 is available - Click Here.