The Power of Leverage When You Invest in Utah Real Estate
Leverage is one of the greatest advantages you have when you invest in Utah real estate. Leverage is basically a technique that allows you to multiply your gains (or losses), achieving a higher return on investment (ROI) than you would otherwise. This tool is one of the reasons more millionaires are created through real estate than anything else. Want to know how it works?
Let’s say you pay cash for a $100,000 rental property for sale in Utah, and the property rises in value to $110,000. That’s a 10% return on investment. Now let’s say you use leverage, putting down 20% and borrowing the rest. In that same example, your return on investment would climb to 50%, because your ROI is calculated on the entire value of the property, not just your down payment.
There are many ways to use leverage when you invest in Utah real estate to grow your wealth, but the most popular way is financing your purchase.
Real estate is really one of the few places you can buy something for $100,000 and pay only a fraction of the purchase price, and using financing allows you to control more properties than you could by paying in cash. If you have $150,000 to invest, you could use it to buy a duplex in cash that generates $12,000 in income every year. If you use leverage, you can buy a much more expensive property valued at $750,000, which generates $6,000 per month in income. After a loan payment of $4,000, you’re making $2,000 every month, or $24,000 per year — twice what you would without using leverage!
Along with using leverage to generate passive income through rent checks every month, you’ll also enjoy steady increases to your net worth as the property rises in value over time. To show you how this works with leverage, here’s another example.
Assume you’re ready to invest in Utah homes for sale as an investment. You have $100,000 to spend, so you buy a home outright that appreciates in value 5% per year. In 1 year, your net worth would have increased $5,000. With the same amount of money, you can use leverage to invest in a property worth $500,000, which would grow in value in $525,000 in the same time period. Rather than growing your wealth by $5,000, leverage allows you to increase your worth by an extra $20,000!
The more leverage you use, the higher your ROI, but your risk will also climb, too. This powerful financial is the secret to making real estate work for you. Want to know more? Contact the Blake Frei Team to learn more about how leverage can work for you!