Last month I was speaking with someone who is looking for an income producing investment property in Kitchener Waterloo. She has $250,000 in equity, and wanted to buy a multi unit property for cash - i.e. without a mortgage. She felt, ‘why take on debt if you don’t have to?’
My answer: to make more money!
Let’s look at scenario 1, where you buy a duplex for $250,000, all cash.
In scenario 2, we’re going to use the same $250,000 to put a 25% down payment on $800,000 worth of real estate - maybe a 10 plex, or a triplex and 5 condominium units - and keep $50,000 in a reserve fund (or a sominex account as Bawldguy calls it), just in case. We’re going to assume that you do all your due diligence and only buy good, solid properties with healthy income. The income should cover the expenses as well as the mortgage payments on the $600,000 you borrowed to buy the $800,000 in property.
If the properties in both scenarios appreciates 10% over two years, in scenario 1 your property is worth $25,000 more. In scenario 2, your property (or properties) are worth $80,000 more.
If you’re investing for the long term (10+ years), the differences are even greater. Leverage allows you to control more real estate, and when you’re in the growth (or acquisition) phase, you benefit from being able to buy more real estate with the same amount of equity.
One client I’m working with now is taking $100,000 out of their current property, and using that to purchase $350,000-$450,000 in new assets. This conservative use of leverage allows them to accelerate the rate their wealth grows at.
How much would your portfolio be worth in 10 years if you utilized the principle of positive leverage? What would you do with the extra seven figures worth of equity?
If you are interested in a free consultation about how you can maximize the growth of your real estate investment portfolio, call me today at 519 570 4447!
Benjamin Bach is passionate about helping people build wealth so they can live the life they love. He works with investors from across North America, helping them Retire Rich, and earlier than they thought possible!
Call or email Kitchener Waterloo’s Favourite Real Estate Agent (Gold Award, Kitchener Waterloo Record Readers Select Awards 2007 - 2008) today to learn how you can start your Real Estate Investment portfolio.
Benjamin is a Sales Representative with Keller Williams Golden Triangle Realty in Kitchener Waterloo and would love to answer any questions about buying or selling a rental, income or investment property.
You can reach Benjamin at benjamin(AT)benjaminbach.com or call him at 519 570 4447
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