Educated investors have created empires by positive gearing their portfolios. Positive gearing property is where the income received in rent exceeds all other outlays such as weekly loan repayments, insurance, rates and repairs. This positive cash flow method enables properties to stand alone and pay for themselves over time, without the owner dipping into their own pocket. Many experts liken this to printing money.
Successful property investors such as Robert Kiyosaki (author of Rich Dad, Poor Dad), Donald Trump and many others have continuously increased their property portfolio by using such methods. Some have become billionaires. Many Australians have also retired, living comfortably off the yields of this investment strategy. One such success story is Phil Anderson who retired at the age of 40.
However positive gearing has not only been successful in the property market. Some of the world’s greatest investors, such as Warren Buffett, use the same method in the share market. For example, when many stocks fall in price, the yield (dividends) increases. What this means is that you can borrow money from as low as 5%, for example, and receive dividends from the stock you purchased of more than 8%. This is another form of positive cash flow that enables the stock to pay for itself over time without the owner dipping into their own pocket.
Moreover, the latest emerging trend in positive gearing is turning an expense into a profit. More than one million Australian home owners have done this by using Solar Systems to cover power bills. They are installing solar systems by adding them to their home loans, or taking out leases to create a positive cash flow – similar to property and share investors. This is how Queenslanders are doing it:
Adding a Solar System to their home loan (interest rate at 6.4%)
Paying off a 5kW solar system over 15 years will cost the investor approximately $21 p/w.
A 44 cent feed in tariff will generate/save the investor $60 p/w, ($39 profit per week)
An 8 cent feed in tariff will generate/save the investor $30 p/w, ($9 profit per week or 70% return per week).
Leasing a Solar System
Leasing a 5kW solar system over 15 years will cost the investor approximately $25 p/w.
A 44 cent feed in tariff will generate/save the investor $60 p/w, ($35 profit per week)
An 8 cent feed in tariff will generate/save the investor $30 p/w, ($5 profit per week or 20% return per week).
The benefit of leasing is that you can save money instantly without having to outlay the cost of the system.
These returns only get greater as power prices increase.
Warren Buffett is one of the largest investors in Solar in the world.
Disclaimer: Please note that the information provided is used for examples only and it is recommended that you seek independent advice.