Basics truths that any person should know and understand about real property are many. What is addressed in this issue is the concept of leverage. There have been many securities laws written as a result over leverage of stocks and bonds in the 30’s depression and market crash. Bankers are very conservative when lending on property because they know and understand the following concept.
Leverage simply put is buying more with the same amount of capitol and borrowing the balance to pay for the commodity or property in hopes of multiplying the return on investment. As an example if the investor has $100,000.00 to purchase property and were to purchase one property for $100,000.00, then if appreciation occurs at a rate of for example 5%, then the investor would have gained an appreciation of $5,000.00.
The application of leverage takes the idea further. The investor now puts for example 20% down payment on each of five properties of the same value of $100,000 each, and then finances $80,000.00 on each property. Now the investor, may we say speculator at this point owns $500,000.00 value in property appreciating at the same 5% or $25,000.00 per year. The assumption here is that the income from rents will pay for the interest, taxes, insurance, and maintenance. The owner also has five times the principle reduction on any loans more than the single property above had. Good idea when it works and a net return of 25% on original capitol.
On the flip side of the coin, Leverage can and will work against the investor inversely and exponentially faster than leverage works for the investor going up in appreciation. It only takes a short time to eliminate the original $100,000.00 equity in a depreciating economic cycle. Generally the rate and accreditation of depreciation is faster going down than when it goes up.
Leverage is not bad, it is simply a fact and method of investment management which can be used to benefit and can work brutally against the investor.
We continue postings about the basic real estate truths that everybody should, must know before they become involved with ownership of real property. Information on any of the property for sale in Western Colorado can be seen by clicking here.
That’s all the tidbits for now!
Hey, I found your blog while searching on Google. I have a blog on online stock trading, I’ll bookmark your site.
Online Stock Trading, thanks for the bookmark, I would prefer a link to my real estate web site. The idea of this blog is help people understand basic, yes even required knowledge of real estate ownership. I will touch upon negotiation techniques, rules of ownership, and similar topics. Details on most property listed for sale in Southwestern Colorado can be found on my real estate web site. Come to visit!
Awesome blog!
I thought about starting my own blog too but I’m just too lazy so, I guess I‘ll just have to keep checking yours out.
LOL,
Savannah, I trust you found helpful information on the real estate “Tricks-of-The-Trade and Tidbits”. I will endeavor to write many informative articles on basic real estate information people need to know and understand about real property ownership. If you are interested in Colorado property you may want to check out Western Colorado Dot Net where you can find information on most property listed for sale in Southwestern Colorado. These are not just my listings. Thanks again for looking and reading!