Most people don’t buy property solely with the money they’ve got in their own pockets; it’s simply not necessary. If the bank is willing to back you up for a portion of the cost of the property, it just makes sense to let them help you in that way. This is a good deal for people who are buying homes just for themselves and their families, but an even better one when we start talking about people who are buying properties as investments.
The process of using borrowed capital to increase the return on an investment is called leverage. For most investors, this means borrowing money from a bank. When you set out to buy a property, the bank is generally willing to cover between 75 and 85 percent of the cost, with the rest being covered by a down payment made by the investor.
Leverage helps investors to get the most return possible on their investments by reducing the amount of money they have to put down up front while taking advantage of equity appreciation when the value the property increases. A key thing to remember is that when the value of the house goes up, you benefit from 100% of the entire value: not a portion of the down payment.
Think about this example. Let’s say a property is listed at 500,000, and the bank covers 80 percent of that. The investor only has to put in 100,000 (or 25%) as a down payment to start out. The property then appreciates in value by 5%, meaning it is now worth 25,000 more. The property’s value increased by only 5%, but the value of the investment increased by 25%..
How is that possible? Well, through the magic of leverage, the investor only paid 100,000. The 25,000 they made was a return on the 100,000, not the full price. Thus, the investor was able to make a profit of 25% instead of 5%. Real estate is one of the only markets in which this is a possibility. The bank won’t pay for you to buy gold, but they will help you finance an investment in real estate. By letting them help you, you help yourself get the most bang for your buck.
ABOUT July Ono.
JulyOno.com is a real estate investment company. We have been actively involved in the Lower Mainland area real estate investing for a number of years. Our mission is to provide local housing and commercial workspace to quality tenants while at the same time providing an above average return on investment (R.O.I.) for our investor partners and for ourselves. It is truly a win-win-win way of investing!
July offers her investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact July Ono.
For more information about July and her investment program, please call (604) 830-2438 and email her at firstname.lastname@example.org or visit https://julyono.com/