The Long Term Effect
Leverage plays a large part in Gemini's Investment programmes and is utilised in two main areas.
Property Acquisition:
We buy in bulk from developers and by using the leverage of buying multiple units we secure genuine discounts for our Investors.
We are very cautious of buying more than five units on an individual development site, hence the majority of our purchases comprise of multiple purchases spread across many different development sites.
Financing:
The majority of Investors find that they can build an impressive property portfolio using Gemini without having to provide finance from their personal reserves.
A key factor in property investment is 'Capital Growth'. Capital growth is the amount of money the property increases by in value over a period of time. This figure will remain the same irrespective of whether a property acquisition has been mortgaged funded or funded from personal savings.
Most prudent Investors consider it more beneficial to invest as little as possible or nothing at all, into a purchase of a property. Thus maximising their 'Return on Investment'. However, upon a portfolio reaching a certain size, it is commonplace for an Investor having to provide some top-up capital in order to effect a further purchase. This is normally due to lending restrictions imposed by both mainstream and secondary mortgage lenders. Despite this, Gemini Investors will nevertheless still find their financial input to be considerably less than it would be without Gemini's involvement. To illustrate this, we have used the following example:
Variables:
| Investor's fund/capital reserve: | £105,000 |
| Average property price: | £100,000 |
| Mortgage Rate: | 5% |
| Rental Income: | £550 p.c.m. |
| Capital Growth | 5% p.a. |
Over a two year period the following would occur:
1. Purchasing property using personal funding (no mortgage)
As the Investor only has £105,000 this would mean only one property could be acquired, hence:
| Capital Growth | |
| Year 1, 1 Property @ 5% (compounded) | £5,000 |
| Year 2, 1 Property @ 5% (compounded) | £5,250 |
| Total Capital Growth | £10,250 |
| Rental Income | |
| 24 months, 1 Property @ 550 p.c.m. | £13,200 |
Return on Investment is £23,500 which is 22.4% on the initial £105,000
2. Using traditional buy-to-let mortgages
Under the terms of a buy-to-let mortgage the Investor will have to personally finance a minimum of 15% of the purchase. As the Investor has £105,000 this means that seven properties could be purchased, hence:
| Capital Growth | |
| Year 1, 7 Properties @ 5% (compounded) | £35,000 |
| Year 2, 7 Properties @ 5% (compounded) | £36,750 |
| Total Capital Growth | £71,750 |
| Rental Income | |
| 24 months, 7 Properties @ 550 p.c.m. | £92,400 |
| Mortgage Payments | |
| 24 months, 7 Properties @ 500 p.c.m. | £84,000 |
| Total Net Rental Income | £ 8,400 |
Return on Investment is £80,150 which is 76.3% on the initial £105,000
3. Using Gemini's leverage system
With our scheme we offer a minimum of 5% funding towards the purchase, and a rental guarantee. The Investor would therefore now need to personally finance 10% of the purchase. As the Investor has £105,000 this means they could afford to purchase ten properties.
| Capital Growth | |
| Year 1, 10 Properties @ 5% (compounded) | £50,000 |
| Year 2, 10 Properties @ 5% (compounded) | £52,500 |
| Total Capital Growth | £102,500 |
| Rental Income | |
| 24 months, 10 Properties @ 550 p.c.m. | £132,000 |
| 10 Rental Guarantees | £ 20,000 |
| Mortgage Payments | |
| 24 months, 10 Properties @ 500 p.c.m. | £120,000 |
| Total Net Rental Income | £ 32,000 |
Return on investment is £134,500 which is 128% on the initial £105,000
Scheme | Pre-tax Return on Investment | % Return on Investment |
1 | £ 23,500* | 22.4% |
2 | £ 80,150* | 76.3% |
3 | £134,500* | 128% |
The above results clearly indicate that Gemini's leverage system generates the best capital return.
* These figures are for illustration purposes only and do not take into account any void periods, ground rent/service charge liabilities, associated purchase costs, maintenance costs or tax payment.