page contents
The Power OF Leverage In Real Estate

The Power OF Leverage In Real Estate

The Power OF Leverage In real estate – Nowadays real estate is very popular for investing, many people attend a seminar on how to invest in it, many hires consultant and many more. There are many reasons for making an interest in real estate but the common reason for this is because there are unlimited opportunities are available in real state, there are a number of good deals waiting for you in each second, The only thing is you have to train your brain to see that opportunities but this is not the end we can’t ignore the other side of the coin because there are number of opportunities are available it does not mean you never lose in real estate one of the common reason for this loss is diversify but actually it is De-worsify. This is happening because they don’t know how to use the power of leverage in real estate.

The power of leverage in real estate

 

Let me explain to you,

The common mantra heard everywhere today is, “Invest for the long term, dollar-cost-average, diversify your portfolio, etc., etc, etc.” This is a great mantra for people who do not know much about investing. The word I have always questioned is diversifying. When I hear someone say they have a diversified portfolio, I often ask them what they mean by that word. More often than not, they will say something like, “I have some growth funds, bond funds, international funds, sector funds, mid-cap funds,” and so on.The Power Of Leverage In Real estate My next question is, “Are they all in mutual funds?” Again, in most cases, the response is, “Yes, most of my investments are diversified in different mutual funds.” While their mutual funds may be diversified, the reality is that their investment instrument of choice, in this case, mutual funds, is not diversified. Even if they say, “I do dabble in stocks, invest in REITs, and I do have some annuities,” the hard fact is that most people are only in the paper-asset category. Why? Because paper assets are easier to get into and manage. “Paper assets are more sterile”, They are neater and cleaner.

Most people will never build a business and most people will not invest in real estate because of the acquisition, liquidity, and management challenges.”

There are over thousands of mutual funds to choose from in the United States alone. There are more mutual funds than there are companies that mutual funds invest in. Why are there so many mutual funds? Because of the same reasons listed above. They are sterile and often sterilized in the name of protecting the public.The Power Of Leverage In Real estate The problem the public has is figuring out which of the thousands of funds is best for them. How do you know if the hot fund today will be the hot fund tomorrow? How in the world do you choose the winning fund today for your retirement tomorrow? And if over 80 percent of your investment portfolio is in mutual funds, is that really a diversification and is that smart? Personally, I don’t think so. Anyone who has 80 percent or more of their portfolio in different funds is not really diversifying. They are really de-worsifying their portfolio If they know about the power of leverage in real estate they never do this.

How much Leverage is real estate recommended: (Beauty of Investing in Real estate)

In real estate, you can make money and the government will let you count it as a loss of money means, ”you make money, and you get a tax break instead of having to pay taxes on the money you made”, ” The government gives you a tax break on your gains rather than making you pay taxes on your capital gains”. The government lets you keep more money rather than pay more taxes. One way is through depreciation or Phantom cash flow, which is cash flow the average investor cannot see.

The Power Of Leverage in real estate

Another one is,

” If a building is a historical building, the government may give you a tax credit, which is far better than a tax deduction, to improve your investment, Do you think the government will give you a tax credit to buy more mutual funds and “You can receive a tax credit for 50 percent of the cost of improvement related to the people with Disabilities Act. For instance, if you pay $10,000 putting a wheelchair ramp in for handicapped people to have access to your commercial building, you could receive the maximum credit of $5,000.

But you have to check with your CPA before doing anything like this. You want to make sure you know the current regulations and benefits before doing anything.

Leverage in real estate investments

  • One more advantage is that the bank will lend you the money to buy your real estate. As far as I know, banks will not lend you money to invest in mutual funds or stocks. They may use such assets as collateral, but only after you have invested your own money to acquire them.

Number two is no capital gain tax if you understand what are you doing, mean

”You must pay capital gains tax on the money you did not make, in fact, lost and with real estate, you can avoid capita;- gains tax”

  • It’s done all the time via an exchange called the 1031 exchange. For example, let’s say I buy a house for $50,000, putting only $5,000 down and borrowing the remaining $45,000 from the bank. And let’s say the rent more than covers my monthly expenses so I have cash flow from my investment.

The Power Of Leverage in real estate

 

In this way, your money is working for you, and that income is passive income so it is taxed at a lower rate than ordinary income such as paycheck income and income from savings and your 40l(k), After a few years, you find out your $50,000 rental house is now worth $85,000. You sell it for a $35,000 gain, but you do not have to pay the capital gains if you want to put it into a bigger investment, In this example, you make $35,000 in capital gains and pay no capital gains tax.

  • The third point is that the bigger the real estate investment, the more the banks and the government want to lend you money, When you go to your banker with a real estate investment over, let’s say, a million dollars, the banker is not lending money to you. The banker is lending money on the property. When the average person goes to the bank to ask for a loan, the bank evaluates the credit-worthiness of the individual. When this same person wants to buy, let’s say a small rental property, a property such as a condominium or a house or duplex, the banker still evaluates primarily the person. As long as you have a steady job and enough income to pay for these smaller properties, the bank will often lend you, not the property, the money.

But on bigger properties, when the price of the property is far beyond the income of the individual, the bank then looks at the income and expenses of the property itself,” said the pilot, On larger properties, the asset really is the property and its income stream, not the individual borrower’s income stream.

If you know what are you doing,

  • The same is true with borrowing from the government. If you go to the government with a $150,000 property, in many cases the government agency is not interested. But if you want to acquire a property that is a slum and you want to convert it to safe low-income housing, the government has millions of dollars to lend. In fact, if your investment is not over $5 million, it’s hard to get anyone in the government to become interested in your property.

Anybody invest in real estate if he or she knows how to use the power of leverage in real estate.

Real estate Leverage strategies

In real estate, every person has a question in their mind How to find a great investment or how to leverage real estate to build wealth, The answer is simple you must train your brain to see what others cannot see, after listening to this the next question is ” How do you train your brain?.

The answer is ” “The same way any shopper finds a good deal.” people who focused on saving by driving from store to store shopping for food bargains. The same is true for real estate, or for any investment. You need to become a professional shopper.

100:10:3:1

A great strategy for shopping for a property is the 100:10:3:1 method. That means you should analyze 100 properties, make offers on ten of them, have three sellers say yes, and then buy one. In other words, it makes shopping and looking at over 100 properties to buy one property.

Kiss Many Frogs

I know you here the story of the princess who had to kiss a frog in order to find her handsome prince. Similarly, You have to kiss a lot of frogs in order to know which one is a prince, In investing, and in many aspects of life, that statement holds true.

The Power Of Leverage in real estate

Today, when I hear that someone took a job at age 25 and stayed there all their life. I wonder how they know the difference between a good job and a bad job. When I meet a person who decided to be a doctor at age 15, I wonder if they really used reality in making their decision. The same is true in relationships and in investing.

“Most people avoid kissing frogs, and end up marrying them instead.”

Means, that when it comes to investing and their future, most people do not take enough time kissing. Instead of taking the time to look for good investments, most people act on impulse, hot tips, or let a friend or relative manage their financial investments.

Operating Leverage in real estate

  • Look at more properties.
  • Take your time. There is more than one good deal. Too many people buy because they believe the deal they have found is the only deal in the world.
  • Analyze the rental market as well as the purchase market.
  • Talk to more than one real estate salesperson.

PicsArt_09-24-06.35.01

  • Be careful about investing in condominiums. Condominiums most often have a board of directors made up of homeowners. Homeowners and investors do not always see eye to eye. Most homeowners want to keep their property nice, so they spend excessively on maintenance. While it is good to keep up your property, an investor loses control over that very important area of investing, the area of expense control.
  • If expenses are out of control, that also affects the future sales price of the property.
  • Never buy expecting the price of the property to go up. The property should be a good investment in a good economy and in a bad economy. As I always said, “Your profit is made when you buy, not when you sell.
  • Don’t invest emotionally. When you buy your own personal investment, it is okay to get emotional. When you buy a property for investment purposes, emotions can blind you. My friend was more excited about the beach being near the property than by the return on investment. She looked at the beach rather than the financial statements.
  • There was not much she could do to improve the property. One of the ways you can make a lot of money is by having control over changing, modifying, or improving the value of the property, something you cannot do with stocks or mutual funds. Many times, just adding a garage or an extra room can greatly multiply your return on investment.

You can earn in millions from using the power of leverage in real estate.

 

Making Improve Your Vision

Great investments are seen in your mind’s eye, and nowhere else. In the real world, there aren’t “For Sale” signs that say, “Here is a great deal.” All the signs say is, “For Sale.” It is your job to train your brain to see a great deal and to also negotiate a great deal. That takes dedication and practice.

What Everyone Can Do

As promised, I stated that everyone can do what it takes to become rich. The thing that everyone can do is go shopping for real estate. If you and a partner will agree to look at 5, 10, 20, or 25 properties a week, even if you have no money, I promise you that your vision will improve. After analyzing 100 deals, I know that you will find one or two investments that will excite you. When you are excited about becoming rich, your brain shifts into another context and you begin to seek new content that can answer the question, “How do I raise the money so I can get rich?”

 

The Power Of Leverage in real estate

Everyone can do this, even if they do not have any money. This is all you need to do on a regular basis, this will give you experience and the process of analyzing properties goes faster. In the best and worst of economies, you will learn to managed and to find a great deal. you don’t always buy them or put offers on them, but the process of looking for investments and analyzing them keeps your minds sharp and it keeps you in touch with the abundance of opportunities to be found, if only you would just go looking for them.

Every fisherman has a story of “the one that got away.” Every real estate investor has a story of the one he or she found, the one that others missed. There are lots of stories that are written for the purpose of inspiring you to begin looking at your first 100 investments.

Where to Keep Your Money

Most rich people either made their money in real estate, or they held much of their wealth in real estate after they made it.

There are many reasons the rich do this:

  • Tax laws encourage the rich to invest in real estate
  • There is greater leverage in real estate. A rich person can become even richer by investing in their banker’s money.
  • The income from real estate is passive income, the least taxed of all incomes. If there are capital gains from the sale of a property, the capital gains can be deferred for years, allowing the investor to reinvest with what normally would have been the government’s tax money.
  • Real estate gives the investor much more hands-on control over their assets.
  • It is a much safer place to park money if the investor knows how to manage money and property.

 

   Conclusion

The word leverage means doing more and more in less and less efforts, This word is a extraordinary word if you know how to use the power of this word you will definitely get success even in every stage of your life or especially in business if you an entrepreneur make sure you use the power of this word.

 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Close Menu
%d bloggers like this: