What is Gearing Investment Property? And How Do I Make Money From It?

Gearing investment property, also known as leverage can be described in one of two ways - either as the balance of using any of your own money alongside other people’s money, or as the relationship between a company’s or individual's indebtedness and its equity capital.

For example: if you have £30,000 to invest and you decide to put it in a savings account earning 4% interest it is logical that you will only earn interest on this £30,000, which you have placed into the account.

However if you use the £30,000 to put down a 15% deposit on a £200,000 Buy to Let property, then you will be earning a rental income and benefiting from the capital appreciation on the whole £200,000, not just your £30,000 deposit you initially put in.

It is this ability to benefit from the whole of an asset when you have not technically bought the whole (i.e. you have not paid cash for the whole), which is known as gearing or leverage.

This is why property is such a good investment and why gearing investment property can have a phenomenal impact on your personal wealth, you can put in a fraction of the cost of an asset (and in some situations nothing at all), yet you can benefit from the whole. So, instead of using your £30,000 to buy a £30,000 property for cash, you could use it to buy and control a £200,000 asset instead.

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