Become a Property Baron

Step 1 - USE LEVERAGE  

Borrowing to invest in growth assets is the key to serious wealth accumulation. That's simply because, although borrowing increases your exposure to market risk, it also creates the potential for more rewards because share-markets and property has always gone up, long term. Remember, debt is one of the few tools available to ordinary people to build extraordinary wealth.

It should only be good debt - that is, the debt used to buy assets that are earning assessable income, such as property or shares. Bad debt for consumables and items that decline in value should be avoided as much as possible. Good debt gives you a tax deduction on your interest payments, so, interest of say, $10,000 only costs you $7,000, in after tax terms, if you are a 30 per cent marginal tax payer. Good debt also gives you leverage. Why own one $350,000 house when you can use good debt, secured against the equity in your home, to own two? That way, when the property market rises 10 per cent, you make $70,000 not $35,000 profit. Manage the debt properly and it is difficult to make a mistake. Create "safety nets" for your areas of risk using insurance, buffers and guarantees.

Whatever happens, people who sensibly embrace good debt will be long-term winners. How much you leverage should relate to how secure your income flow is.

Step 2 - CHOOSE WISELY 

It makes sense to borrow when to buy growth assets when the interest rates, after tax, don't exceed the income yield of the asset. Unfortunately, most investors are not good at making these choices so it would be well to take the advice of experts. What may come as surprise to many investors is that the actual investment you pick within an asset category is not the most important decision! It is much less important than the decision to be exposed to an asset sector. In other words, whether a fund manager selects an industrial investment in, say, Poland or a retail investment in, say, Sydney is a far more important decision than the individual properties within that asset sector. Why? Because if the demand for industrial space in Poland falls, none of the properties within that asset sector will rise.

Step 3 - THINK LONG TERM 

Psychologists now believe that whether you tend to dwell on the past, present or future predicts more about your personality and the kind of life you will lead than any other aspect of your psychology. Research has found that successful people are "future thinkers" (long term). Similarly, successful investing is about buying quality, income earning, assets for the long term.

Step 4 - TAKE ADVANTAGE OF TIMING 

The longest bull-run in US share market history was preceded by a dearth of funds for mutual funds. That bull-run ended in March 2000 yet then, massive funds were flowing into the funds. Asset prices rise and fall in the short term creating buying opportunities for intelligent long term investors. Try and discount the short term fluctuations and copy the techniques of Warren Buffett who takes advantage of the folly of nervous investors when they panic in market downturns - take the long term view of the asset you are acquiring.

Step 5 - USE TAX SHELTERS 

Tax deductible borrowing against any income producing asset allows you to build wealth while reducing your overall tax bill - it is, effectively, a government sponsored investment as long as your asset is earning "assessable income".

Article Source: http://EzineArticles.com/?expert=Neil_Handley

About the writer -----------------------------------------------------------------------------
Neil Handley graduated as a Bachelor of Economics and Accountant. After some 20 years as a stock broker Neil turned to property development. He then acquired a controlling interest in a property development company listed on the stock exchange and became CEO. He has been involved in developing residential subdivisions, industrial subdivisions,shopping centres, office buildings and medium density residential dwellings in Sydney's north shore, Northern Districts, Parramatta and Liverpool areas and on the Gold Coast, Queensland. One office building was sold to the AMP for $25ml. Neil's company advises on building wealth via property.
Go to http://www.specialstrategies.com .

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