Leverage allows a real estate investor to realize the full benefits from their property increasing in value, while only having to use a small portion of their own cash. The power of leverage is using other people’s money (borrowed) to maximize your profits.
Here are two examples to illustrate how it works:
Example 1: You have $10,000 to invest, so you purchase a property for $10,000 in cash. The property increases in value the first year by 10%, and is now worth $11,000. The second year, it also increases in value by 10%, so it is now worth $12,100. You have a two-year gain of $2,100 on your original investment of $10,000, which is a compounded annual growth rate of 10%, not too bad.
Example 2 – use leverage: You decide to use financial leverage and only put $1,000 down on the same $10,000 property. As in the first example, the property is now worth $12,100 after two years. But since you used leverage, you now have a two-year gain of $2,100 on your original investment of only $1,000. This is a compounded annual growth rate of 248%, this is the true power of financial leverage in real estate investing!
At LandParker.com we proudly encourage all investors to take full advantage of real estate leverage in their next property investment. All of our properties have affordable financing options with a low down payment, and low monthly payments. There are no pre-approvals or credit checks needed. Simply pick out the property you want and get started today.