Leverage is a real estate investing strategy that involves borrowing money to buy property with the goal of increasing returns[1][6]. It is the use of various financial instruments or borrowed capital, such as debt, to increase the potential return of an investment[1]. In real estate, the most common way to leverage your investment is with your own money or through a mortgage[1][2][3]. Leverage works to your advantage when real estate values rise, but it can also lead to losses if values decline[1][2][3]. Here are some key takeaways about leveraging equity in real estate investing:
Advantages of leveraging real estate:
- You can grow your portfolio quicker[3][4]
- Earn additional rental income[3]
- Protection against inflation[3]
Risks of leveraging real estate:
- You must be able to pay off your loan, or you could lose your leveraged properties[3][4]
- Leverage creates risk as well as reward[4]
- Avoid leveraging risks by making sound investment decisions and accounting for mortgage payments, vacancies, and a tough economy[1]
Overall, leveraging equity in real estate investing can be a double-edged sword. It can help investors increase their real estate net worth, but it also comes with risks. Investors need to consider every option when it comes to financing a rental property and use leverage wisely when growing a real estate portfolio[3][4].
Citations:
[1] https://www.investopedia.com/articles/mortgages-real-estate/10/increase-your-real-estate-net-worth.asp
[2] https://www.crowdstreet.com/resources/investment-fundamentals/understanding-leverage-in-real-estate-financing
[3] https://www.baymgmtgroup.com/blog/what-is-real-estate-leverage/
[4] https://learn.roofstock.com/blog/leveraging-real-estate-to-build-wealth
[5] https://www.biggerpockets.com/blog/leveraging-real-estate-build-wealth
[6] https://www.mynd.co/knowledge-center/how-to-use-leverage-real-estate