Most people have experienced the concept of leveraging their money in real estate when they purchased their first home, but few realize the true power of leverage when it comes to investing in real estate.

There is a very old debate about a home being an asset or a liability. Since a home doesn’t pay out money each month, most (should) consider it a liability since it actually costs money out of pocket to operate each month. Therefore, leveraging money to buy a personal home is not usually a great idea, but also not easy for most people to avoid.

I won’t break down the specific numbers in this particular post, but I can show you how much more lucrative it is to purchase 5 properties at 20% down rather than buy 1 property in cash. When you calculate all 7 profit centers (upcoming post) from each property, 5 leveraged properties can make a LOT more money than 1 property that was bought in cash.

Basic example:

Purchase price of rental property – $100,000 (not in Canada!)

Down payment required – $20,000 (can be less in some cases)

Bank or private loan for the balance – $80,000 plus interest.

This means 80% of the property can be leveraged by getting a mortgage from the bank or a private loan. If you want to buy 100K worth of stocks, you need to invest 100K worth of your money. The last time I checked, the banks do not give out loans to invest in the stock market.

So once the rental property is leveraged, now what? Each month, the bank or lender requires payments to pay back the loan plus interest. No problem. The tenants who are renting the property make monthly rent payments, and that money is used to pay down all expenses and hopefully puts a little extra in the pocket each month. What happens if the tenant moves out or stops paying rent? Browse my website to learn what we are doing with multi-family properties and how these challenges are overcome to continue earning profits.

In summary, once you learn the true power of leverage and how to use it to your advantage in purchasing real estate, the sky is the limit….until they start building on Mars.

Teamwork makes the dream work.