Because the market is on the rebound as I write this, I wanted to say a few words about "Leverage" in real estate. In short, levers will you buy with the money of other people's property, and why leverage in real estate can generate substantial income. With only a minimum of risk
You may remember what a lever of high school mathematics class. It's been a long time since I sat in Miss Alberta class in Ridgewood, NJ, but still, when I think of a lever I visualize a worker moving a huge rock with a long pole and wedging that pole against a fulcrum so that he can make the move big rocks. If you remember this scenario, the key is the length of the rod. I think it was Archimedes who said, "with a long enough pole, I could move the earth." In real estate, the key is a low mortgage rates.
So translate, how elementary mathematics and the concept of leverage in real estate? Well, let's say you have $ 100,000 in cash and you decide in a house that costs $ 100,000 to invest. Elapses after 5 years, you sell the house for $ 125,000. In this very simple example (no fix-up, no taxes or storage costs) you have made $ 5,000 per year, and spent $ 100,000. Congratulations, you have 5% on your money. It's a better return than a savings account (but comes with more risk).
OK suppose now the same house for $ 100,000, but have you had only half of the money will cost to buy the house would. She put $ 50,000 and borrowed $ 50,000. Now at the end of those five years, when you sell the house for $ 125,000 and pay off the loan, you have. Your $ 50,000 back and the difference of $ 25,000 as profit That's still $ 5,000 per year, but it took only $ 50,000 to make it happen, so your return on investment (ROI) is 10% per year. (A much better return than a savings account, but also here, this example of the costs of operating the property and servicing of the loan.)
Now in a real world example. You buy the house for $ 100,000 and apply to a simple mortgage. The mortgage company's loan to value (LTV) is 80%, meaning you can get the money to buy the house with only 20%. Now, at the end of your five years property when you sell the property for $ 125,000, you have "made" $ 25,000. An investment of $ 20,000 That is $ 5,000 per year on invested $ 20,000, or 25% per year on your money. (Can you do that? Yes, it happens every day in every state in America).
What happens when the federal government wanted to make a buck? Consider this, offered the HomePath program offers Fannie Mae foreclosed homes directly to qualified buyers. This special program allows you to qualify with only 3% down payment and you can even repair up to $ 35,000 back to your home. And even better, it can be a investment property, as for many federal programs that are only available if you live in the home of his opposition. I will not kid you, you need a good credit score to get the 3% credit, but if you qualify, it's a great program.
With the HomePath program, if you buy the house for $ 100,000, with their 3% and 97% of Fannie Mae, and you sell in 5 years for $ 125,000. You will notice the "risks or invested" $ 25,000 profit with only $ 3,000 of your own money. Now, your ROI is 166% per year. In truth, it is not to be that high, because you will pay taxes, insurance, principle and interest, each year, but you can see what can use.
And since you only $ 3,000 of your $ 100,000 to make this investment, you need to invest $ 97,000 more. I would suggest to think about more than own a home at a time.
Are there risks? Yes, but an investor that its properties are managed not allow risks to get out of control. He will not let the properties deteriorate, and buy and sell without emotions. Not every property is a "home run" to be, but enough, so that a simple portfolio of 4 or 5 houses or apartment buildings produce a good rental income every year, and go to multiply a long way to a retirement plan. And in all my examples, the risk is the same, just change the return-so the Smart Investor (1) buys so little of his own money as possible, and (2) spreads the risk over multiple properties.
Years, late night TV, gave Kramer flacking "No Money Down real estate programs" where average people become very rich, seemingly overnight. Nerds had large boats, Rolex watches and beautiful girlfriends. That does not happen very often. If you are honest, do not plan to get rich quick. But you rich slowly. I see it every day.
Dane Hahn is a real estate professional practice in Florida and New Hampshire. Reach him at 941-681-0312 or reach dane.hahn @ gmail.com. See it online at www.danesellsflorida.com.
Article from http://reedge.blogspot.com/.