How Leverage Can Help You Exceed Your Returns Goals
The Power of Leverage
Using all cash to fund a new real estate investment may seem like the most logical way to get the highest possible profit; however, this is rarely the case. The best investors in the world understand the power of using leverage to fund their deals, and are able to increase their overall earnings by taking on more properties at the same time.
For example, let’s assume you can spend $200K to purchase and rehab a single property and will make a $50K profit on the house. If you use cash, you focus on one property at a time, and use the proceeds from one to buy the next investment property.
However, employing moderate leverage (75% LTC), you can split up the same $200K and buy 4 houses at once (with a $50K down-payment on each), instead of one at a time. That’s how profits can escalate.
Utilizing debt will cost you a little bit. Let’s say that were $10K per home, so your profit on each property decreasing from $50K to $40K. Because you are using the same $200K cash to buy 4 properties instead of one, you are now making a total profit of $160K ($40K x 4), rather than just $50K, using the same amount of total invested cash.
To learn more about leverage and how to structure your deals using capital, read this blog post.