{"id":5741,"date":"2023-08-22T06:23:44","date_gmt":"2023-08-22T06:23:44","guid":{"rendered":"https:\/\/www.voozon.com\/?p=5741"},"modified":"2023-08-22T06:23:48","modified_gmt":"2023-08-22T06:23:48","slug":"how-to-use-financial-leverage-to-your-advantage-in-real-estate","status":"publish","type":"post","link":"https:\/\/www.voozon.com\/how-to-use-financial-leverage-to-your-advantage-in-real-estate\/","title":{"rendered":"How to Use Financial Leverage to Your Advantage in Real Estate"},"content":{"rendered":"\n
For the most part, your investing power is constrained by the funds available to you. If you can invest $1,000,000, you’ll see more impressive nominal returns than someone who can only invest $10,000, even if your strategy is inferior in some way.<\/p>\n\n\n\n
Intuitively, you may believe that there are only a few methods available for access to investing funds. You can try to make more money, you can free up capital by selling some of your assets, or you can reinvest returns generated by other investments.<\/p>\n\n\n\n
However, there’s another way to increase your investing power, and it’s relatively accessible even to new investors: it’s called financial<\/a> leverage and it could be exactly the tool you need to see better returns in real estate.<\/p>\n\n\n\n The Many Aspects of Real Estate Investment<\/strong><\/p>\n\n\n\n First, understand that there are many different ways to approach real estate investing. You can choose to invest in residential or commercial properties. You can invest in a wide range of different areas. And you can invest with different goals in mind, such as cash flow or long-term appreciation.<\/p>\n\n\n\n One of the most popular strategies in real estate is investing in rental properties, which you\u2019ll be responsible for managing<\/a>. In this arrangement, you’ll find tenants to occupy your property, charge them monthly rent, and use that rent to cover expenses as well as generate a small profit.<\/p>\n\n\n\n Returns on individual properties with one or two units are typically small, so most investors make it a goal to expand their portfolios with further real estate purchases. This is where financial<\/a> leverage comes into play.<\/p>\n\n\n\n What Is Financial Leverage?<\/strong><\/p>\n\n\n\n Financial leverage<\/a> is using borrowed funds to artificially increase your investing power. For example, if you have $20,000 in the bank, you ordinarily wouldn’t be able to buy a $200,000 property. But if you’re willing to take out a mortgage, you could use your $20,000 as a down payment and borrow the rest, functionally getting access to a $200,000 property with only $20,000 in capital.<\/p>\n\n\n\n There are obviously some risks and downsides to this maneuver. You’ll be responsible for paying back the loan even if the property falls in value. You’ll be forced to pay interest on whatever you borrow. And increasing your debt may limit you in other financial areas.<\/p>\n\n\n\n But the upsides are incredible. You can invest in properties much faster and invest in more properties with the use of financial leverage. You can benefit more strongly from property appreciation. And you don’t have to stake as much of your own Personal Capital, so you can save it for other endeavors or personal expenses.<\/p>\n\n\n\n How to Use Financial Leverage to Your Advantage<\/strong><\/p>\n\n\n\n So how do you use financial leverage to your advantage?<\/p>\n\n\n\n \u00b7 Solidify your qualifications as a borrower. <\/strong>You’re not going to have access to financial leverage if you don’t qualify for any borrowing opportunities. You should therefore make it a priority to improve your qualifications as a borrower, such as by paying off your other debts, increasing your income, and more importantly, improving your credit score.<\/p>\n\n\n\n