Information for BuyersInformation for Investors December 12, 2018

The Power of Leverage

Most real estate transactions are leveraged. In other words, the purchaser is using a combination of their own cash with the balance coming from a bank in the form of a mortgage. It is often overlooked how important leverage is and why it is such a critical tool to build wealth. Your dream home may be out of reach now, but with a small real estate investment today, you will be well on your way to use leverage to work your way up the property ladder.

Here is how I turned $10k into $415k in only 6 years through the power of leverage:

I purchased a side-by-side duplex in 2012. My wife and I lived in one side and rented out the other. I used an FHA loan to purchase at $362,000, so I had to come out of pocket $12,670 as a down payment. At the time I purchased, both units were rented and I didn’t move in until 60 days after we closed. By the time we moved in I was out-of-pocket about $10,000 accounting for the collected rent.

Fast forward three years. My wife and I decided it was a good time to buy a new house with a little bit more yard and a bit more square footage. Since buying the duplex, we saw a lot of appreciation and we were able to pull out about $50K in cash via a refinance. We then used that cash as the down payment to purchase the house we currently live in. Fast forward again to today and we have a total value for both properties of about $1.25MM, and we owe the bank about $835K. If we were to sell both properties, we would walk away with $415K (not accounting for Realtor commissions, closing costs, etc. Luckily I know a great Realtor!).

Through the power of leverage, I was able to take $10K and turn it into $415K in six years. Not a bad return on investment! This demonstrates why it is so important for folks to get on the property ladder and how a person can grow significant wealth through real estate. Call me today and lets put a plan together to get you on a similar fast track to wealth!

 I suppose this would be a good time to share a song I wrote back when I was shopping for my duplex. Enjoy!