As you know that most people worldwide believe investing in real estate is much more lucrative than investing in other assets.
Real estate is one of the most in-demand tangible assets, and it is not going away anytime soon.
While the market may tumble now and then, their real estate market will always be there, irrespective of anything.
If you are beginning your journey into real estate and your goal is to attain financial freedom, there are various ways you can go about it. One such method is using leverage to build your portfolio. So, what is leverage in real estate and its importance? Many need to learn to achieve success in their goals. However, there is a common misconception that it is challenging to get into, but having some savings to pay twenty percent of the property is enough to get you started. You do not need to break the bank.
A Brief On Leverage
You must not be demotivated if a property is worth five hundred thousand dollars and you do not have that much money. You can use leverage to buy real estate, generate a cash flow, and own the property.
Buying a property to rent or lease will enable you to generate a cash flow. You can use this cash flow to pay off your monthly mortgage and use the excessive amount as your monthly profit.
Not only will you gain property in your portfolio, but in the long run, you will be able to reap the monthly influx of money and enjoy capital appreciation.
What is leverage in real estate? To know more about it and explain how leverage works, assume that you want to buy a property worth $100,000; you can do so by paying the down payment of $25,000 and mortgaging the rest of the amount. This leaves you with $75,000 of leverage acquisition.
If you can manage the property well and keep it leased throughout, you can pay off the mortgage and enjoy the extra cash as a profit.
Advantages
- Achieve Greater Return
When you use leverage to acquire a property, you can get a higher return on your initial cash or equity investment. However, you can only enjoy greater returns if you only use it to buy a property that you will rent. If you use it for personal purposes, you will not be able to make money.
So, as long as you are not paying a monthly mortgage from your pocket, you can generate a good cash flow.
- Broadens Your Options
If you only have a small budget and do not plan on using leveraging, then your budget and options will be limited. You might need help buying the best rental units in the area.
However, if you have limited cash and plan to use it as a deposit for the rental property, you will get to look at many more options as your budget expands.
For instance, if you have $100,000 to buy the property, your options will be limited. On the other hand, using $100,000 as a deposit, you can buy properties worth $500,000.
- Helps You Increase Your Net Worth
Net worth is all about what assets you have, and by using leverage, you can buy assets way above your current assets without having to risk anything.
So, if you want to begin your journey as a real estate investor, you can do so through leverage and scaling your portfolio to the next level.