Actually there’s nothing magical about leverage but it is amazing that we, as real estate professionals, have access to such an excellent investment tool. AIPIS considers real estate the only sane asset arena in which to employ leverage. Yes, the stock and currency markets allow the use of “leverage” in the form of what they call margin but if you had any idea how many trading accounts were blown up every day because of this damnable feature, you’d run screaming from the building.

Simply put, leverage allows you to boost the buying capacity of your money. It’s pretty straightforward. Say you have $100,000 cash and want to invest in real estate. Using a straight out purchase technique, which no smart investor would ever do, you could purchase a single property for $100,000. You’d own it outright and begin earning monthly rent from a tenant. All well and good but it gets so much better if you use leverage.

Instead of purchasing a single property, you could split that $100,000 cash five ways and pay 20% down on five properties, taking out a mortgage on each one for the balance. See what you just did? Using the same amount of cash, you now control five properties rather than one. You’re getting rental cash flow from all of them but the best part is that on down the road you’re going to own five properties instead of one, even though you began with the same amount of money.

That, friends, is leverage.

Worried about the logistics of taking on five mortgages? If you’ve done your due diligence and selected properties that make financial sense the day you buy them, you shouldn’t be. Yes, the market may roll a bit beneath your feet every now and then but housing is a universal need that’s not going away. Don’t try to leverage and cash flow your stock holdings like this!

The AIPIS Team

Flickr / Rafael Amado Deras