How To Use Leverage In Property Investment

When you buy investment property, there is something very important that you must use to become successful - LEVERAGE.

If you think that you can do it all on your own, it is going to be a very slow and painful way up. Savvy property investors habitually leverage on other people's time, knowledge and most important of all, money, to build up a portfolio of investment properties that continually produce income for them.

 The fastest way to leverage is via a bank loan. Let's keep things conservative and assume that your investment property is valued at $100,000. If you were to pay cash for it, you will have to get hold of the $100,000 on your own. Whereas, if you were to take up a bank loan, you probably only need to get hold of about $10,000 and borrow the rest of the funds. Next you rent out the investment property and your tenant will pay off your bank loan.

 Just imagine if you were to acquire an investment property valued at $1 million or more. How are you going to generate that kind of funds?

Another simple reason to use a loan instead of forking out the full price of the investment property is that later on, if your investment property appreciates in value, you would have made a massive income. In the event that the investment property appreciates in value by 10%, you can easily sell it off at $110,000, meaning you make profit by $100,000 given that you only paid $10,000 as the down payment and borrowed the rest. Now compare that to if you paid cash for the investment property. Your entire profit would only be $10,000 which is the total amount that the investment property appreciates in value.

Of course this is a very simple calculation, but in the real world, you still have to think about other elements like prices, interests, legal charges and other miscellaneous fees that the sale and purchase of your investment property will incur.

One other way to leverage is with other people's skillset. This is where playing in a team can really be beneficial. Intelligent property investors will always socialize with other property investors. Every now and then, they contact developers in concert as a team and see if they can find good discounts. With more people in a team, they can each contribute something to the table and be able to make better selections when it comes to picking investment properties to acquire.

Furthermore, not everyone will have the spare time to go shopping for investment properties. So they can send several people from the team to go visit the property and see if it meets to their expectations. This is also where other people's abilities become useful. You may not be familiar with the neighborhood where you wish to purchase your investment property really well, but somebody else on your team may. You may assume that the location looks good but your team member may think otherwise because he or she is aware of something that you don't.

This is how excellent property investors can to amass a substantial pool of investment properties in a short period of time.

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