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Using Leverage To Maximize Your Investment Potential

The absolute greatest technique in real estate investing is using leverage to maximize your return on investment and broaden your investment footprint. New investors often seem focused on quick turns and doing everything possible to move a property before their first mortgage payment is due. While occasionally a short-sell might be a good deal, usually it doesn't  yield the profits investors expect. There is a better strategy... "Hold that House" to increase your return on investment. And you can use leverage to do just that.

What is leverage? 

If you were to purchase a $100,000 property with 10% down, you would control an asset worth $100,000 for $10,000 down.  Leverage is the power to control an asset for a fraction of the cost.  If you had $100,000 to invest you could theoretically control $1,000,000 in real estate.

So, let's say in 1995 you had $100,000 to invest. Using leverage, you could have bought ten houses in Peachtree City for $100,000 apiece: 10% down with a mortgage of $90,000 each.

You then kept these properties as rentals, letting someone else make the payments and taking in a little positive cash flow as a result. Remember, you paid market value for the property -- no deals. Today, you would owe about $78,800 and each property would be worth around $180,000 on the low end. You could sell your properties and retire with over $1 million dollars in the bank (before taxes). Better still, you could do an 80% cash out refinance on two of the ten and pull out approximately $65,000 per house (tax deferred) or $130,000 per year for the rest of your life on your $100,000 investment. Now that's a smart investment strategy.