The Power of Leverage in Real Estate– Part 1

Buying real estate is more than shopping for properties. As an investor, you really have to get to the bottom of things and make sure everything is crosses checked multiple times.
Making your first real estate deal can be intimidating at first. The idea is to leave behind such thoughts and take a shot at investing in real estate.
Over the course of time, real estate has established itself as a great place for investors to park their money. In every person’s life, there’s a time when they have to indulge in a real estate transaction of some sort. Many people see it as an opportunity while others run away from it.
It can be argued that real estate instills far more power within its investor as compared to other investment opportunities. Even after the market fall in 2008, people still think for real estate as a reliable income source.
The best thing about real estate investing is the power of leverage you get. Let us take a look at it in detail.

Leverage in Real Estate Explained

Leverage is the extra benefit you get while choosing to invest in real estate. This means that you don’t have to pay the entire value of the house. Investing in real estate gives extra benefits to the investor. In comparison, all the other investment means fall short.
Let’s look at the stock market. When you are looking to buy a stock, you will have to pay according to its value in order to purchase it. You can’t go around paying the total value. And even after paying the full amount, you don’t have the surety of appreciation. Even if you look to borrow money, the money that will be lent to you can’t be compared to what is given in a real estate transaction.
On the other hand, when we talk about real estate, the initial deposit needs to be from 20% to 25% of the total value. Depending on where you live, you can lower this down payment to even 5% of the total worth. This means that you can become an owner of a property by paying a meager amount of money as compared to its value.
One negative point about getting such a huge benefit is the interest rate that is applied to the entire process. But the monthly mortgage payments are designed in such a way that you will not even bother about them.
This is the main essence of real estate investing which enables house flippers and landlords of rental properties to earn money on a property they have not paid for. At times, investors get a second mortgage on their home and invest the money to hold another property. It is then up to them to decide whether to sell it for a profit or to rent it out.

Different Ways to Invest Using Leverage in Real Estate

There several ways through which a real estate investment can be made. But the simplest of them all are listed below.

• Investing in a rental property.
• Becoming part of a real estate investment group.
• House Flipping, and
• Real Estate Investment Trusts—REITS.

All the above-stated investment methods are fairly easy to understand, but as an investor, you need to sure about what you are doing. Asking for advice from professionals can turn out to be really helpful.