Before investing in real estate, it may be difficult to determine just exactly how to go about coming up with the necessary funds. Even the smallest of rental property can run in the high 5-figures on up. But, because of a wonderful concept known as leverage, investors who buy real estate are not forced to come up with the entire purchase price up front.
In fact, unlike buying stocks or mutual funds – where you need to have $100,000 if you are purchasing $100,000 worth of the investment – when you buy property, you are typically only required to put down a small percentage of the overall purchase price. And, because of this concept of leveraging your investment funds, your return on investment can increase exponentially as compared to most other financial options.
For example, most conventional real estate mortgages will require you to put down 25% of the purchase price. But, depending on what type of property you are buying, and the lender that you are working in conjunction with, you may be able to buy for as little as 5% – or less. Doing so not only means that you can obtain the property, but that you can control the entire investment for far, far less.
In looking at an example, let’s say that you purchase $100,000 worth of stock, and the investment goes up to $110,000 at the end of the first year, giving you a return on your investment of 10%.
Now let’s say that you buy a property, with a purchase price of $100,000 and that you put down 10% of the purchase price, or $10,000. At the end of the first year, your property value has increased to $110,000. In this case, the value of the property itself has increased by 10%.
However, since you only put down $10,000 towards the purchase price, your return is actually 100%. And, as an extra added bonus, you have a tenant in the property whose rent payment is helping you to ultimately pay down your mortgage balance.
There are numerous other benefits to purchasing real estate – and, when you own rental property, you do not have to spend your time managing the units or the tenants yourself. That task can instead be taken on by a property manager – which essentially allows you to also leverage your time. For more details about how you can leverage your time with an experienced property manager in the Orlando area, Contact Us.