Leverage in Real Estate: What It Is and How Can You Make It Work for You
Ever wish you could walk into a bank and say, “I've got a hunch about a stock that’s going to soar. Can you lend me $20,000 to invest, and I'll pay you back once I make some profits?” Well, while that might not fly in the stock market, it's a game-changer in real estate.
That's where leverage comes in. It's like having a financial superpower that lets you use borrowed money to make bigger gains on your investments, turbocharging your ability to build wealth and improve your life.
What Is Leverage?
Leverage means using borrowed money to boost the potential returns on an investment. It's like having a financial multiplier that lets you control more assets with less of your own money.
Think of it like this: in some super-profitable markets, you can put down just a fraction of the total value of an investment and still control a much larger position. This means you can make big moves in the market with just a little cash, thanks to leverage.
How Does Leverage Work in Real Estate?
Here’s the magic of leverage in real estate: instead of sinking all your money into one property, you can spread it out across several. For example, if you have $100,000, you could buy one $100K property outright. Or you could use that same $100K as a down payment on five properties valued at $100K each, giving you control over $500K in assets with the same investment.
This strategy lets you earn money in multiple ways from each property. And to see how well your investment is performing, you can calculate the Cash-on-Cash return, which shows you how much cash income you're earning compared to how much cash you’ve invested, including any money borrowed.
How to Use Cash Flow to Pay for Your Investment
Real estate offers another perk: you can use the rent you collect from tenants to pay off the money you've borrowed. As tenants pay down the loan, you build equity in the property, benefiting both you and the lender.
Plus, there are tax advantages. You can depreciate the entire cost of the property, not just the down payment, and even deduct the interest you pay on the loan, leading to significant tax savings.
How to Benefit From Leverage Without Letting It Burn You
But remember, with great power comes great responsibility. Leverage can supercharge your returns, but it also increases risk if you’re not careful.
The key is to use leverage wisely. You might, for instance, put some money down on one property and spread the rest across several others to diversify your portfolio and maximize your returns.
By harnessing the power of real estate leverage, you can quickly build wealth and join the ranks of millionaires who’ve made their fortunes in real estate. And if you need expert guidance, we’re here to help. At Resilience Equity, we make real estate investing accessible, helping you build lasting wealth that stands the test of time.
