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