Beginning Real Estate Investing - Understanding Leverage

This is one of a series of articles on beginning real estate investing. One of the fundamental concepts to understand as you are beginning real estate investing is the concept of leverage. Leverage is the ability to move or control something very large with a very small object or force. Leverage as it applies to real estate investing is the ability to control high value properties with small amounts of your own cash.

To understand why this is important, and why leverage is so valuable, an example will help. Let’s assume you are just beginning real estate investing and you have $20,000 cash to invest. The exact amount is really unimportant, so long as you understand the principle involved. To illustrate the power of leverage, let’s assume you are faced with three possible choices of how to invest your $20,000.

Choice one is to purchase a small single family home with a purchase price of $20,000. The market rent for this home is $250 per month, or $3,000 per year. For purposes of this illustration, let’s pretend there are no such things as taxes, Realtor fees, or any other costs involved with purchasing a piece of property. Wouldn’t that be nice? As a you are beginning real estate investing you’ll soon learn otherwise, but for now let’s indulge in a little fantasy.

Choice two is to purchase a duplex for $40,000 by putting our $20,000 cash down and borrowing the additional $20,000. The market rent for this duplex is $500 per month, or $6,000 per year. The monthly payment on our loan is $200, so positive cash flow is $300 per month, or $3,600 per year. Not too bad, considering we are just beginning real estate investing.

Finally, choice three in beginning real estate investing is to purchase a multi-unit apartment building for $140,000 by putting $20,000 cash down and borrowing the additional $120,000. The market rent for all the units in the building totals $1,500, and our monthly loan payment is $1100, leaving us a positive cash flow of $400 per month, or $4,800 per year.

Let’s see which of these three situations best demonstrates the power of leverage. To do this we need to make a simple calculation, called Return On Investment (ROI) for each choice. This is a very important calculation to learn as you are beginning real estate investing. ROI is calculated by dividing the amount of return we get back in a year’s time by the amount of cash we have invested.

In choice one, $3,000 return divided by $20,000 gives us a Return On Investment of 15%. Not bad, considering we’re just beginning real estate investing, but let’s see if we can do better. Choice two gives us a return of $3,600 per year for the same $20,000 invested, so our ROI is $3,600 divided by $20,000, or 18%. That’s excellent, but we still have one more choice to look at.

Choice three gave us a return of $4,800 on our investment of $20,000, so our ROI is a whopping 24%! Why so big? Because even though we’re just beginning real estate investing, we were able to “move” or control a much more valuable piece of property with a very small “lever”… in this case, our $20,000. What gave us that leverage? The ability to use Other People’s Money (OPM), but that’s a topic for another article.

Until next time, I’ve written another in-depth article called Beginning Real Estate Investing.

Now, go make more offers!

Beginning Real Estate Investing - Understanding Leverage

This is one of a series of articles on beginning real estate investing. One of the fundamental concepts to understand as you are beginning real estate investing is the concept of leverage. Leverage is the ability to move or control something very large with a very small object or force. Leverage as it applies to real estate investing is the ability to control high value properties with small amounts of your own cash.

To understand why this is important, and why leverage is so valuable, an example will help. Let’s assume you are just beginning real estate investing and you have $20,000 cash to invest. The exact amount is really unimportant, so long as you understand the principle involved. To illustrate the power of leverage, let’s assume you are faced with three possible choices of how to invest your $20,000.

Choice one is to purchase a small single family home with a purchase price of $20,000. The market rent for this home is $250 per month, or $3,000 per year. For purposes of this illustration, let’s pretend there are no such things as taxes, Realtor fees, or any other costs involved with purchasing a piece of property. Wouldn’t that be nice? As a you are beginning real estate investing you’ll soon learn otherwise, but for now let’s indulge in a little fantasy.

Choice two is to purchase a duplex for $40,000 by putting our $20,000 cash down and borrowing the additional $20,000. The market rent for this duplex is $500 per month, or $6,000 per year. The monthly payment on our loan is $200, so positive cash flow is $300 per month, or $3,600 per year. Not too bad, considering we are just beginning real estate investing.

Finally, choice three in beginning real estate investing is to purchase a multi-unit apartment building for $140,000 by putting $20,000 cash down and borrowing the additional $120,000. The market rent for all the units in the building totals $1,500, and our monthly loan payment is $1100, leaving us a positive cash flow of $400 per month, or $4,800 per year.

Let’s see which of these three situations best demonstrates the power of leverage. To do this we need to make a simple calculation, called Return On Investment (ROI) for each choice. This is a very important calculation to learn as you are beginning real estate investing. ROI is calculated by dividing the amount of return we get back in a year’s time by the amount of cash we have invested.

In choice one, $3,000 return divided by $20,000 gives us a Return On Investment of 15%. Not bad, considering we’re just beginning real estate investing, but let’s see if we can do better. Choice two gives us a return of $3,600 per year for the same $20,000 invested, so our ROI is $3,600 divided by $20,000, or 18%. That’s excellent, but we still have one more choice to look at.

Choice three gave us a return of $4,800 on our investment of $20,000, so our ROI is a whopping 24%! Why so big? Because even though we’re just beginning real estate investing, we were able to “move” or control a much more valuable piece of property with a very small “lever”… in this case, our $20,000. What gave us that leverage? The ability to use Other People’s Money (OPM), but that’s a topic for another article.

Until next time, I’ve written another in-depth article called Beginning Real Estate Investing.

Now, go make more offers!

Real Estate Investing: Selecting A Leasing Agent

Lack of time and the increasing pace of life, has been ruling the modern times. Shortcuts seem much more appropriate and longer paths though much safer and more reliable do not solve the purpose. Slow and steady now lags behind the speedier. The same principle has been governing the real estate investing business, which is now controlled by faster intermediaries. These intermediaries referred to as leasing agents act as a bridge between the owner and the tenant. Leasing agents backed by adequate market knowledge and continual up gradation with the latest trends, enable much faster deals than otherwise possible. The concerned parties owing to the less strenuous research and faster turn around time are in a much convenient slot and therefore are accustomed to the easy requirements.

However, an important concern to be addressed in such real estate investment decisions is identifying the right leasing agent who can be your perfect representative. When operating through an agent, the bargain relies heavily on the agent?s knowledge and trust. Make sure that you agent is not the other party?s agent is disguise. Selecting and employing the right agent can curb all investment concerns however a wrong selection in this regards can tie you up with not only a bad bargain but a problematic location, which would adversely affect in the long run.

Hiring a Leasing Agent: Things to Consider There are various aspects to be considered while recruiting a leasing agent. Few important tips and caution statements before hiring one are outlined below:

Define The Role: Before hiring a leasing agent, be clear with what are your expectations with the agent. Do you expect him to drive you to all the locations of interest or show you the ones listed with him. Who handles the paperwork? What stage do you intend to meet up with client directly? Make sure to answer these questions before taking the decision. Check Out Before Hiring: Make sure that you know an agent?s reputation before hiring him. Check out his past to get a taste of the deals done before. It is advised to seek for reference or hire through referrals. Other landlords could serve as a database in these regards. A more experienced agent can certainly get you a better deal.

Pricing Concerns: Before hiring, make sure to be into clear understanding regarding the payment terms and modes to avoid any such issue sat a later stage. Establish An Understanding: To get the best it is essential to ensure that your agent understands your requirements. Make sure that the two of you are on a clear footing and share a common platform while making any real estate investment decision. Legal Requirements: Check out for adequate licenses and requisite education qualifications.

A leasing agent can act as a magical wand in striking the right deal, however it is better to undertake the initial search in hiring an apt leasing agent rather than cribbing later.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Beginning Real Estate Investing - Understanding Leverage

This is one of a series of articles on beginning real estate investing. One of the fundamental concepts to understand as you are beginning real estate investing is the concept of leverage. Leverage is the ability to move or control something very large with a very small object or force. Leverage as it applies to real estate investing is the ability to control high value properties with small amounts of your own cash.

To understand why this is important, and why leverage is so valuable, an example will help. Let’s assume you are just beginning real estate investing and you have $20,000 cash to invest. The exact amount is really unimportant, so long as you understand the principle involved. To illustrate the power of leverage, let’s assume you are faced with three possible choices of how to invest your $20,000.

Choice one is to purchase a small single family home with a purchase price of $20,000. The market rent for this home is $250 per month, or $3,000 per year. For purposes of this illustration, let’s pretend there are no such things as taxes, Realtor fees, or any other costs involved with purchasing a piece of property. Wouldn’t that be nice? As a you are beginning real estate investing you’ll soon learn otherwise, but for now let’s indulge in a little fantasy.

Choice two is to purchase a duplex for $40,000 by putting our $20,000 cash down and borrowing the additional $20,000. The market rent for this duplex is $500 per month, or $6,000 per year. The monthly payment on our loan is $200, so positive cash flow is $300 per month, or $3,600 per year. Not too bad, considering we are just beginning real estate investing.

Finally, choice three in beginning real estate investing is to purchase a multi-unit apartment building for $140,000 by putting $20,000 cash down and borrowing the additional $120,000. The market rent for all the units in the building totals $1,500, and our monthly loan payment is $1100, leaving us a positive cash flow of $400 per month, or $4,800 per year.

Let’s see which of these three situations best demonstrates the power of leverage. To do this we need to make a simple calculation, called Return On Investment (ROI) for each choice. This is a very important calculation to learn as you are beginning real estate investing. ROI is calculated by dividing the amount of return we get back in a year’s time by the amount of cash we have invested.

In choice one, $3,000 return divided by $20,000 gives us a Return On Investment of 15%. Not bad, considering we’re just beginning real estate investing, but let’s see if we can do better. Choice two gives us a return of $3,600 per year for the same $20,000 invested, so our ROI is $3,600 divided by $20,000, or 18%. That’s excellent, but we still have one more choice to look at.

Choice three gave us a return of $4,800 on our investment of $20,000, so our ROI is a whopping 24%! Why so big? Because even though we’re just beginning real estate investing, we were able to “move” or control a much more valuable piece of property with a very small “lever”… in this case, our $20,000. What gave us that leverage? The ability to use Other People’s Money (OPM), but that’s a topic for another article.

Until next time, I’ve written another in-depth article called Beginning Real Estate Investing.

Now, go make more offers!

Real Estate Investing For Leverage

The term leverage in the world of finance is defined as borrowing money to purchase a company and relying on it to produce enough capital to cover the interest payable on the loan. This is the type of leverage that investment in real estate properties provides.

You do not have to be rich to invest. The goal, of course, is to make money for the long term. The principle is rather simple: spend a little to make a lot. Take the $10,000 you have accumulated in equity, use it as a down payment on an investment property that has a positive cash flow, use the cash flow to pay the mortgage and your investment will appreciate into ten times the original amount over time.

It is interesting to note that after you have invested in a property; your net worth has increased substantially from your initial investment. Let?s take that $10,000 and buy a piece of property with a fair market value of $100,000. The $10,000 is 10% of the value and makes a nice down payment. The mortgage is now $90,000 and you have equity of $10,000. Your net worth has increased by $90,000.

Let?s say the property produces a cash flow of $900 per month. The monthly note on a 30-year loan at 7% is only $598. Your positive cash flow is $302. If you paid all the cash flow into the monthly payment, and if you bought the property in 2006, you would have the property paid off in 2019 ? 13 years ? and the interest you save would be over $121,000.

There are two directions you could go. One is to buy and hold. This means that you buy this property and you hold on to it with everything you have. It absolutely should increase in fair market value. You should see increases in cash flow. You could add these increases to your note and then you could be realizing in a short period of time a nice, regular income from this piece of property. That retirement nest egg would be actively working for you over numerous years until retirement and through retirement.

If you think you do not have the time between now and when you want to retire, think again. The other direction may be for you. You could build some equity in the property we talked about above. Then you could trade up using the equity you built in making double payments and investment tax incentives.

You should always trade up in value or equal in value in order to benefit from the tax savings. When you take this route, you will actually be raising your net worth by much more than equity because you will be steadily increasing your net worth by more than just the cash flow from your investment.

If you were to take the fast-track accumulated equity you have built by paying double or triple the principle each month and trade up to a property worth $200,000 rather than $100,000, you could double your cash flow and pay off the mortgage in 16 years. That would give you a hefty cash flow at retirement with a very small initial investment.

About the Author:

Investment Property Specialist - Alex Anderson Connects Real Estate Investors With High-Quality Investment Properties. Get A Free Copy Of, “The Investor’s Rental Guide” at: www.GreatInvestmentProperty.com

Creative Real Estate Investing

When non-traditional methods are used to buy or sell a property, it is termed as creative real estate investing. It refers to unusual methods used for selling or acquiring real estate. Many kinds of creative real estate investing are practiced frequently.

Popular Types of Creative Real Estate Investing Techniques:

Seller Financing: This is an unusual real estate investing technique where the property owner offers to finance the buyer! The owner typically lends a portion of the equity to the buyer and receives regular monthly payments. The mode of repayment may differ, it may be a principle only payment and interest may be fixed or variable, all depending on the contract agreed upon by both of them. Sometimes the buyer gets to assume the sellers loan, which is written as an all inclusive trust deed. Loans for commercial property are termed as assumable loans where as residential loans are termed non-assumable. These two techniques are used widely among the creative real estate investing techniques.

Lease Options: This refer to a person signing a lease as well as an option to purchase the leased property within a fixed amount of time. The options usually are for short durations of time like 12 months etc. and the lessee agrees to pay an additional amount as an option fee which will be forfeited should the option not be carried through. There are lease purchase options that make it mandatory for a lessee to buy the property with the term of the option. The price of the property is fixed at the time of the agreement and no matter what the land value; the lessee has to pay the amount stated in the agreement. Sandwich lease options are methods of buying a lease option and immediately selling it to another buyer for a profit, which will be shared by the owners.

When mortgages are defaulted the owner may try selling the property to the lender asking him to accept a lesser amount than what is owed in the mortgage.

Another technique is to buy bulk property from banks etc and sell them individually for a small profit. Using tax liens to acquire property is also a creative real estate investing technique. Investors buy tax liens from the government and should the homeowner default, the investor may foreclose the house. Some people buy a property that is ugly or old and unfit, make a few changes and give it a facelift, and are able to sell it for a huge profit.

The scope for being successful by investing in real estate is astounding. With careful planning and using creative real estate investing techniques, a person can make a huge profit as well as build a successful career dealing in real estate.

Real Estate Investing For Leverage

The term leverage in the world of finance is defined as borrowing money to purchase a company and relying on it to produce enough capital to cover the interest payable on the loan. This is the type of leverage that investment in real estate properties provides.

You do not have to be rich to invest. The goal, of course, is to make money for the long term. The principle is rather simple: spend a little to make a lot. Take the $10,000 you have accumulated in equity, use it as a down payment on an investment property that has a positive cash flow, use the cash flow to pay the mortgage and your investment will appreciate into ten times the original amount over time.

It is interesting to note that after you have invested in a property; your net worth has increased substantially from your initial investment. Let?s take that $10,000 and buy a piece of property with a fair market value of $100,000. The $10,000 is 10% of the value and makes a nice down payment. The mortgage is now $90,000 and you have equity of $10,000. Your net worth has increased by $90,000.

Let?s say the property produces a cash flow of $900 per month. The monthly note on a 30-year loan at 7% is only $598. Your positive cash flow is $302. If you paid all the cash flow into the monthly payment, and if you bought the property in 2006, you would have the property paid off in 2019 ? 13 years ? and the interest you save would be over $121,000.

There are two directions you could go. One is to buy and hold. This means that you buy this property and you hold on to it with everything you have. It absolutely should increase in fair market value. You should see increases in cash flow. You could add these increases to your note and then you could be realizing in a short period of time a nice, regular income from this piece of property. That retirement nest egg would be actively working for you over numerous years until retirement and through retirement.

If you think you do not have the time between now and when you want to retire, think again. The other direction may be for you. You could build some equity in the property we talked about above. Then you could trade up using the equity you built in making double payments and investment tax incentives.

You should always trade up in value or equal in value in order to benefit from the tax savings. When you take this route, you will actually be raising your net worth by much more than equity because you will be steadily increasing your net worth by more than just the cash flow from your investment.

If you were to take the fast-track accumulated equity you have built by paying double or triple the principle each month and trade up to a property worth $200,000 rather than $100,000, you could double your cash flow and pay off the mortgage in 16 years. That would give you a hefty cash flow at retirement with a very small initial investment.

About the Author:

Investment Property Specialist - Alex Anderson Connects Real Estate Investors With High-Quality Investment Properties. Get A Free Copy Of, “The Investor’s Rental Guide” at: www.GreatInvestmentProperty.com

Creative Real Estate Investing

When non-traditional methods are used to buy or sell a property, it is termed as creative real estate investing. It refers to unusual methods used for selling or acquiring real estate. Many kinds of creative real estate investing are practiced frequently.

Popular Types of Creative Real Estate Investing Techniques:

Seller Financing: This is an unusual real estate investing technique where the property owner offers to finance the buyer! The owner typically lends a portion of the equity to the buyer and receives regular monthly payments. The mode of repayment may differ, it may be a principle only payment and interest may be fixed or variable, all depending on the contract agreed upon by both of them. Sometimes the buyer gets to assume the sellers loan, which is written as an all inclusive trust deed. Loans for commercial property are termed as assumable loans where as residential loans are termed non-assumable. These two techniques are used widely among the creative real estate investing techniques.

Lease Options: This refer to a person signing a lease as well as an option to purchase the leased property within a fixed amount of time. The options usually are for short durations of time like 12 months etc. and the lessee agrees to pay an additional amount as an option fee which will be forfeited should the option not be carried through. There are lease purchase options that make it mandatory for a lessee to buy the property with the term of the option. The price of the property is fixed at the time of the agreement and no matter what the land value; the lessee has to pay the amount stated in the agreement. Sandwich lease options are methods of buying a lease option and immediately selling it to another buyer for a profit, which will be shared by the owners.

When mortgages are defaulted the owner may try selling the property to the lender asking him to accept a lesser amount than what is owed in the mortgage.

Another technique is to buy bulk property from banks etc and sell them individually for a small profit. Using tax liens to acquire property is also a creative real estate investing technique. Investors buy tax liens from the government and should the homeowner default, the investor may foreclose the house. Some people buy a property that is ugly or old and unfit, make a few changes and give it a facelift, and are able to sell it for a huge profit.

The scope for being successful by investing in real estate is astounding. With careful planning and using creative real estate investing techniques, a person can make a huge profit as well as build a successful career dealing in real estate.

Real Estate Investing: Selecting A Leasing Agent

Lack of time and the increasing pace of life, has been ruling the modern times. Shortcuts seem much more appropriate and longer paths though much safer and more reliable do not solve the purpose. Slow and steady now lags behind the speedier. The same principle has been governing the real estate investing business, which is now controlled by faster intermediaries. These intermediaries referred to as leasing agents act as a bridge between the owner and the tenant. Leasing agents backed by adequate market knowledge and continual up gradation with the latest trends, enable much faster deals than otherwise possible. The concerned parties owing to the less strenuous research and faster turn around time are in a much convenient slot and therefore are accustomed to the easy requirements.

However, an important concern to be addressed in such real estate investment decisions is identifying the right leasing agent who can be your perfect representative. When operating through an agent, the bargain relies heavily on the agent?s knowledge and trust. Make sure that you agent is not the other party?s agent is disguise. Selecting and employing the right agent can curb all investment concerns however a wrong selection in this regards can tie you up with not only a bad bargain but a problematic location, which would adversely affect in the long run.

Hiring a Leasing Agent: Things to Consider There are various aspects to be considered while recruiting a leasing agent. Few important tips and caution statements before hiring one are outlined below:

Define The Role: Before hiring a leasing agent, be clear with what are your expectations with the agent. Do you expect him to drive you to all the locations of interest or show you the ones listed with him. Who handles the paperwork? What stage do you intend to meet up with client directly? Make sure to answer these questions before taking the decision. Check Out Before Hiring: Make sure that you know an agent?s reputation before hiring him. Check out his past to get a taste of the deals done before. It is advised to seek for reference or hire through referrals. Other landlords could serve as a database in these regards. A more experienced agent can certainly get you a better deal.

Pricing Concerns: Before hiring, make sure to be into clear understanding regarding the payment terms and modes to avoid any such issue sat a later stage. Establish An Understanding: To get the best it is essential to ensure that your agent understands your requirements. Make sure that the two of you are on a clear footing and share a common platform while making any real estate investment decision. Legal Requirements: Check out for adequate licenses and requisite education qualifications.

A leasing agent can act as a magical wand in striking the right deal, however it is better to undertake the initial search in hiring an apt leasing agent rather than cribbing later.

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