Gearing, or leveraging, is a powerful financial strategy used by property investors to amplify their investment returns. By borrowing funds to purchase property, investors can control a valuable asset with a relatively small initial outlay. This method allows investors to multiply the potential gains from property appreciation and rental income.

One of the primary financial benefits of gearing is the ability to enhance returns on equity. For example, if an investor purchases a property worth £100,000 with a 25% deposit and borrows the remaining £75,000, the investor gains exposure to the entire property’s value. If the property’s value increases by 25%, the gain on the investor’s equity is not just 25% but 100%, i.e. it doubles (£25,000 increase on a £25,000 investment).

Additionally, gearing can offer significant tax advantages. Interest payments on the borrowed funds are typically tax-deductible, reducing the investor’s taxable income. This can lead to substantial savings, particularly in higher tax brackets.

Moreover, gearing enables portfolio diversification. With less capital tied up in one property, investors can spread their investments across multiple properties, reducing risk and enhancing potential returns.

Gearing can significantly boost the financial benefits of property investment, offering enhanced returns, tax benefits, and diversification opportunities. This strategy, when used wisely, can be a cornerstone of a robust property investment portfolio. If someone you know is thinking that buying cash is the best way in property – maybe steer them this way.

Married2Property are a family-run property company that aims to create social good through property.

These articles are written by Darren de Wal based on his 12 years of experience as an active Property Investor, and 16 years getting to a senior leadership position as an Officer in the Royal Air Force. They are for the benefit of those with a general interest in Property, as well as those wishing to start out investing themselves.