What Is Real Estate Leverage?

Leverage is the utilization of various forms of borrowed capital for the purchase  of a property or to increase a properties resale value – in an attempt to profit from that assets appreciation over a given period of time. In other words leverage allows an individual or investor a chance to earn more money by using borrowed money.

Still confused?

Here is a quick example of how leverage works.

Imagine you have been saving for a while and you are ready to purchase your first investment property. You have $50,000 to purchase a rental/hold and you have two options in two drastically different neighborhoods: Option 1 is a house in an improving neighborhood for $50,000 that you can buy outright with no mortgage. Option 2 is a $250,000 home in an established great neighborhood that you would need to borrow money to purchase, you put down your $50,000 and borrow the rest. Now lets say that the Real Estate market improves 5% in a year: If you had gone with option 1, the home you own outright is now worth $52,500. If you had gone with option 2 the home you had to finance your home would now be worth $262,500- that is a difference of $10,000 in potential gains!

Of course there are many other factors to consider when utilizing leverage in Real Estate, dips in the market, rental rates, taxes and insurance and more.

But with Louisville, Kentucky experiencing historic appreciation rates and nationally low mortgage interest rates, utilizing leverage is a very intriguing investment opportunity.

Want to try your hand at Real Estate investing? Let the professionals at 2nd Wind, LLC help you find you next great opportunity.