Today at Solutions Realty, we are finalizing our discussion about how owning rental property can be an IDEAL way to fund your retirement or pay for college education. We’ve used the acronym IDEAL, and today we’re talking about L – Leverage.
Leverage can be used as an investment strategy when you use borrowed money to achieve greater returns. Let’s say you have $100,000 cash to invest. You can use that money to pay for one home. If that home nets $12,000 a year in rental income and appreciates at three percent, you will have netted $120,000 in 10 years and increased your net worth in appreciation by over $34,000.
If you use that same $100,000 to put $20,000 down on five different homes valued at $100,000, and you finance the rest, each home will get you $6,000 a year in rental income. They will appreciate at the same three percent per year. In 10 years, those five rentals will net you $300,000 in rental income, and increase your net worth in appreciation by over $172,000. Leveraging increased cash flow by $180,000 over 10 years and increased net worth by over 400 percent or $138,000. In addition, the rental income is paying down your mortgages, and increasing your equity in all five of those properties. It’s important to remember that while our example shows leverage working for you, it can also work against you.
Rental property is one of the few investments that can be leveraged. You don’t see banks lending money to people who want to buy stocks or mutual funds. This is one more reason that we call rental property the IDEAL savings plan.
If you’d like to hear about the great deals available in the Atlanta rental market, please contact us at Solutions Realty Network today.