Leverage in Real Estate: Making Debt Work for Your Money

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Debts can be a good thing for investors. Done with careful consideration, you can stand to make more money leveraging debts to invest in real estate than you ordinarily would if you waited out the market.

Debts are not always something to be avoided. In some instances, you may even find yourself making more money by acquiring an investment through debts, as long as it was done in a carefully planned manner. With the right set of prudent choices, you stand to gain more from acquiring an asset through leveraged debt than you would if you paid for it in cash.

Real estate investments are, unsurprisingly, the most popular application of leveraged debt in individual investing. With the proper understanding, you can utilize leverage more effectively not only on acquiring your own home but also for any subsequent real estate investment you make.

The key to making the best of this principle is to lock in a favorable mortgage rate. This can be advantageous for those investing in growing markets such as Ogden and other towns and cities in Utah,

Threefold Advantages

The benefits offered by leveraged debt to real estate investing are threefold. First among them is that leveraging debt allows you to acquire property that you wouldn’t otherwise be able to afford right away.  You not only get the opportunity to purchase your home right away when the price is optimal, but you also get the opportunity to divert your extra funds toward other investments, helping you create a more robust portfolio rather than spending it all on a single asset.

Another is that leveraged investments can yield an impressive rate of return (both directly and indirectly)—at least significantly more so than if you’ve acquired the property in cash.  The property itself may appreciate considerably in the intervening years, being worth more than it was when you first bought it, and this isn’t counting the cash flow gained from purchasing a property you can rent. The amount of money you initially save, especially if you invested conscientiously, would provide you with steady cash flow.

Lastly, is the tax benefit gained from having to pay off the interest portion of debts, which are typically listed as expenses. This would create a tax shield that would help you keep as much of your profits from your investment as possible.

Managing the Risks


One thing about using debt to leverage real estate deals is that it is very risky, and only when you’re certain you can manage your investments wisely can you take advantage of leveraging to diversify your investment portfolio. Calculated jumps at opportunity are a vital part of the long game of real estate, and timing is everything.

Volatile changes in the market can make or break your investment. It is wise to carefully estimate both your best and worst case scenarios, as sudden shifts can leave you paying too much for a property yielding fewer to no returns. Be very careful with the properties you invest in and make sure to only acquire the amount of debt needed to acquire a property; never pay too much for a house.

Although acquiring a home while its price is optimal is often better in the long run, it should also coincide with locking in a good interest rate in your mortgage to ensure that your returns and debts can be calculated predictably. Whether you’re looking for a home or want to invest in a rental, selecting the right property to maximize returns and minimize the impact of down-market depreciation is vital to protecting your returns and minimizing risks.

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