Using Leverage When Real Estate Investing

One of the major, major advantages of real estate investing is the proper use of leverage.  I’ve long been a proponent of purchasing rental properties that will “hold their own” with as little money down as is possible.  In other words, if the property will break-even after all actual expenses at 10% down, then that’s all you should put down. 

If the neighborhood has more possibilities for future growth and it takes 20% down, then that’s okay.  But keeping your investment property properly leveraged has long been a benchmark that I strive to help my clients achieve.

Now days, however, we need to do additional math.  I had a client quoted as much as .5% less on his mortgage and 1 point less on his fees if he went from 20% down to 25.1% down.  That’s huge.

These are fluid times.  And fundamentals do not change in times like these.  But minor adjustments and tweaks do need to be weighed.  I didn’t say to everyone to start putting down 25% on homes that may very well hold their own with 10% down.  I did say to do the math. 

Due diligence should be a part of every real estate investment.

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Filed under Financing Options, Real Estate Investing

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