Leverage Real Estate
The majority of people in the world dream of becoming successful from childhood. They define success as earning an endless amount of money, driving the most recent and luxurious car on the market and living in a house that’s so big that you couldn’t even imagine. Do all of these luxuries come from working extremely hard at one workplace for many years or having the perfect career? The truth is that many of the wealthy people in this world have a source of passive income. In some cases, many people have a side job to make passive income for which they choose how and when they would like to work.
Let’s say you have $25k to invest anywhere you choose to help it grow. Instead of letting it sit in your bank or under your bed while you figure out what you’re going to do with it, you decide that you want to invest that money into something that will make you even more money in the short term or long term. Let’s also say that you do not want to use your own money. There are three popular methods of investing that investors choose from in order to increase their income.
The first investment people are accustomed to making is into a GIC. A GIC (Guaranteed Investment Certificate’s) is a deposit investment security sold by Canadian banks and trust companies that are often bought for retirement plans because they provide a low-risk fixed rate of return. If you decide to invest your $25k into a GIC fund at a financial institution, you will earn fixed-rate interest over a period of time only on the $25K. There is no leverage involved in this investment. The money you invest is the only money you will be earning interest on. A fixed rate is good because due to its safety component, you are guaranteed a return at the end of your term. However, the downfall to this form of investment is that the money you have earned from the investment is taxable; therefore net of taxes, you are not making much profit. If you constrict your investment into only a GIC, in the short term you may earn a small sum however this will shrink in the long term.
The second investment that people make is into mutual funds. If you decide to invest your $25k to purchase mutual funds, you do not earn a fixed-rate on the money you have invested. There is no leverage in mutual funds, so the money you have invested is the only money you will be earning money on. Investing in mutual funds is subject to the economies going up and down.
There are several administration fees which financial institutions and financial planners charge regardless if you make money or not. You are also taking the risk of losing some of the original $25k that you have invested in the mutual fund if it does not perform well.
However, if the mutual fund does extremely well, you could possibly be looking at an increase in your profit margins. Also, if you decide you want to withdraw your money from this investment, you won’t be paying any taxes on your original investment but you will be paying taxes on your dividends received.
The third and most beneficial investment to make is in the real estate market. Investing in real estate over a few years has been proven to yield much profit. Typically, investors want to invest in real estate because of cash flow, appreciation, tax benefits and leverage. If you decide to invest your $25k into real estate as a down payment, you will need to look into getting a loan as leverage from the bank.
If a real estate investor paid 100% cash to take possession of a real estate investment worth $100,000, and the real estate investment increased in value by $5,000 in a year, the investor would have then made a return of 5%. If the real estate investor attained 95% financing, only $5,000 cash would be required, and a bank/lender would loan the $95,000 left to take possession of the property.
Also the down payment may allow the investor to obtain a lower mortgage payment. The cash flow is the money collected from your tenants, which pays down the loan as time goes on. In the past real estate investors have appreciated a $100k asset with only investing $25k over time. This key point is very beneficial when you do not have enough money to invest and are looking to increase your earnings. It is also beneficial if you have the money but would like to make several real estate investments at once.
The money you made from the real estate investment is taxable; therefore you can lose up to half of your earnings in taxes. On the other hand, with a real estate investment, you are able to write off certain things as business expenses; increasing your non-taxable deductions, causing your earnings to increase.
World Wealth Builders offers many unique, practical, out of the box real estate investor apprenticeship which offers the student hands on, in the trenches style instruction to facilitate both a different mindset as well as a successful and lucrative real estate investment business. You can attend Real Estate Millionaire Apprenticeship in person. To find out more, please go to www.WorldWealthBuilders.com/live.html
The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case
“Permission to Reprint “
You have the permission to re-print this article, as long as you don’t make any changes and include the bio.