The Power of Property Leverage

You want to invest in real estate. What's the best way to use your money? The use of leverage and OPM (other people's money) is what makes real estate such a powerful investment tool. Different people have distinct viewpoints regarding how much leverage and OPM is good.

First of all, always make a qualified mortgage professional part of your team of experts; the examples that follow may not be appropriate or even possible for your particular situation. Some people have the goal of receiving cashflow every month to supplement their incomes while others want long-term financial success through investment appreciation.

To vitalize your financial goal, look closely into your options. What's amazing in the real estate market is the assurance that you are in control. For instance, you have $20,000 to start with. With this amount, you can have either a 10 percent down payment on a $20,000 worth of property or a 20 percent down payment on a $10,000 property. Of course, you will be the one to decide which is better.

Maybe you want to ask: what is the difference between these two options? Considering you decided to put in a larger down payment, chances are, you will pay your mortgage at a much lower price and you do not need mortgage insurance at the 20 percent mark. Larger down payments can provide you cashflow if that is what you like.

On one hand, let us say that the appreciation is set at 6 percent for both properties. (Appreciation rate varies depending on the location, type of property, etcbut for this specific article, we will assume it at 6 percent). In just a matter of one year, your $100,000 property is now worth $106,000. However, the $200,000 property becomes $212,000!

The amount of appreciation for both properties ($100,000 and $200,000) obviously doubles itself year after year. All these and more, but you would not be spending any thereby saving yourself some serious bucks!

In no time at all, savvy investors like you will have enough to get you some equity and you can eventually purchase another property. The MORE properties you have working for you, the better the effects of appreciation will be. What are you waiting for? There will be some limitations in paying a lower percentage down payment though such as additional maintenance costs. But those are minor issues if you compare it to the long-term benefits it promises.

In addition, cashflow is taxable but debt payments and maintenance costs are tax deductions so again you're getting an advantage by using more leverage (more OPM) and getting less monthly cashflow. Some people need the monthly cashflow, and if so, one can shift his strategy to accomplish just that. Many others will find that giving up the extra cash every month means huge long-term wealth building advantages.

With these in mind, its not surprising that you chose the better one. Start pooling your team of experts now and make the right choice!

Alexandria P. Anderson is a Minnesota Investment Property specialist who helps First Time Home Buyers In Minnesota to find and purchase properties in MN. Get a free copy of "The Investors' Rental Guide" at GreatInvestmentProperty dot com.