As you get older, I sometimes ask myself how did I end up where I am. I recently moved in to a large 8 bed, 7,000 sqft house yet I feel I do not work half as hard as some people and they have a lot less.
And after much thought I realised it was done to one thing:
Gearing.
Gearing means your level of borrowing. If you are highly geared you are highly borrowed.
I am highly borrowed. I buy properties, including my own, with little or no money.
Take my new home for example. It cost me £550,000. So I simply got:
- A 90%LTV mortgage from Northern Rock @ 5.79% APR
- A£55,000 unsecured loan to fund the deposit @ 17.9%APR
- A£22,000 unsecured loan to fund the stamp duty @ 35%APR payable at 4% of the purchase price (ouch!)
So it was a no money down deal. But even though it was a no money down deal it was a “get yourself a large mortgage AND some unsecured loans” deal!
This I do not mind as I can service it from all my 200 properties but I thought I would share with you my realisation that the only reason why I have what I have is because I borrow.