How rental properties give you a leveraged return unlike other investments

For virtually every home owner, buying a property will be their greatest single investment.
As real estate investors, we not only know this but we take it to a whole different level!

Here’s a quick look at how you might be using leverage.

Leveraged Return
Let’s say you buy a home for                                  $100’000.00
And put down 20%                                                    $20’000.00
And you have to borrow                                            $80’000.00
Since the market improves an average of 5.7% each year, one year later your home will be worth $105’000.00.
You made a $5’000.00 profit on a $20’000.00 down payment (4 years you are paid back).

Conversely the Stock Market
The same $20’000 does not create an additional $80’000 that is leveraged:
In the stock market, your investment is only the $20’000 you have to invest. If you get a 5% return in a year, your profit will $1000.

Down Payment & Monthly Payments
True the monthly money you pay on a home is like putting money into a savings account, but with far better interest!

Meaning:
Increasing the leverage (the amount you borrow), increases the profit made on money that isn’t yours.
The more house you purchase, the higher your leveraged investment increases.

The greatest profit that you will make will not be made with your money, but the lender’s money.
Money you owe – isn’t yours; but the equity on it is!

What about that money you owe?
Well that’s neat to because inflation tends to increase at an average of 3.6 per year.
So every dollar you owe, and haven’t had to pay back yet, tends to decrease in value by 3.6 cents each year, until you pay it off.

That’s just Equity – as a person that manages people’s rental properties for them, ask me about Cash Flow!

Author:

Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008.

View all posts by Joe White

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