For virtually every homeowner, 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.
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 $105'700.00.
You made a $5'700.00 profit on a $20'000.00 down payment (just over 3 & half 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 (that's good for the stock market), your profit will be $1,140.
Increase the Leverage, Increase the ROI
Increasing 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 tend to not be made with your money, but with the lender's money.
Money you owe - isn't yours; but the equity on it is!
What About That Money You Now Owe?
Well that's neat too, 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.
So your debt is actually devaluing!
But I still have to pay back $80K?
No you don’t, that’s what tenants are for! Not only will tenants pay back that $80,000 for you, and as a nifty savings account for you; but done the right way, they will over pay you.
And that is Monthly Cash Flow - A whole other amazing dynamic helping your real estate investing returns!
Above Video Text Transcript:
Hi Joe White here with Grow
property-management here in Philadelphia
I want to talk about the advantages that
real estate investing has over other
forms of investing I think it's kind of
common for those involved in real estate
investing and be kind of blown away the
others would even consider investing in
different playgrounds like the stock
market and there was that invest in
stock market see real estate is
something that's very foreign and not
there's certainly validity to both sides
you know real estate investing has very
powerful dynamics that blow all forms
investing out of the water but it's not
like the stock market where you can
simply read the New York Times financial
page a couple days a week get advice
from a good stockbroker or even watch a
TV crew that's respected and get some
great tips you know real estate
investing is always going to require you
to make the calls you can't even get a
stockbroker to help you out or financial
advisor on it if they can't get a fee
they're gonna tell you don't do real
estate investing real estate investing
so you know I want to take some time I
want to record a few different talks a
few different podcasts about why real
estate and I say it blows all forms of
investing out of the water but I want to
lay it out over a few podcasts I want to
prove it to you you know I want to say I
want to show you the money but I'm not
gonna do that to you I won't weigh that
one on you so I'm gonna start today with
a real biggie and that's the concept of
leverage real estate doesn't just give
you a return it gives you a leveraged
return so let's say you buy a property
for $100,000 and they make you put 20%
down so you have to invest twenty
thousand dollars of your own money and
at this point you're going to have to
borrow $80,000 to get you that hundred
thousand dollar property so it's very
but property values nationally increase
in average of five point seven per year
so this time next year your property
your $100,000 property that you
purchased this can be with one hundred
five thousand seven hundred dollars and
you just made a $5,000 profit on your
twenty thousand dollar investment in
just three point five years you will be
paid back your initial investment of
twenty thousand dollars now the stock
same $20,000 will not be utilizing
additional $80,000 that is leverage so
in the stock market your investment is
only the $20,000 that you have to invest
you know if you get a 5.6 percent return
in stock market which is probably what
you typically get that's kind of an
average return over here your return is
only give you one thousand one hundred
and twenty dollars not gonna be the five
thousand seven hundred that you're
getting for real estate so big
difference there so the more you
leverage in real estate the more profit
you typically will make now what's nice
is the money that you owe isn't yours
but the equity on it is and that's the
power of real estate one of the powers
of a real estate there is many we're
actually going to go through several I'm
not in this podcast but in a couple
others so now what about the money you
owe well that's kind of neat too because
inflation tends to increase in average a
three point six per year so every dollar
you owe that you haven't had a chance to
pay back yet tends to decrease in value
by three point six cents each year until
you pay it off so your debt is actually
devaluing so you want to now ask me Jeff
all right well that's all well and good
but you still have to pay back that
eighty thousand dollars no you don't
that's what debits are for so all right
well happening investing next I want to
talk about the tax advantages the huge
tax advantages with real estate
investing which are even more powerful
than leverage I will see you in the next