The secret in real estate business is to use other people’s



money. This is how most real estate tycoons are made. Unlike

traditional residential real estate mortgages, real estate

financing offers much broader financial options, including

lending or financing from various financial institutions.

Transactions like these call for above-average negotiation

skills.

It's not advisable to invest your own money in a real estate as

for a few very important reasons. First, you you tend to give

most of your profits away by not leveraging your investment.

Second, real estate is a very risky business – you don't want

to jeopardize everything you have.

This is not to say that real estate investment is all about

losses. On the contrary. if you know how to make money work

for you, you may actually garner a great deal of money in

return for your investment.

Here’s how:

If, for example, you purchase a $100,000 property that

increases an average of 7 percent per year (in reality that

number could be higher or lower), you would see a net profit

from renting your property resulting in an approximately 15

percent return.

If you're content with little return of investment, you might

settle with your 15 percent return. But if you really want to

earn on your investment, consider the possibility of what

leveraging can do for you. At present, a typical real estate

investor can find financing as high as 95 to 97 percent of

the purchase price. There even some instances where you may

be able to get a 100 percent financing but we won't use this

for our example as it's an inadequate comparison.

So, if you're are an investor who is already content with a

smallreturn of investment then 15 percent sounds like a lot.

But for those who really want to make it big in the real

estate, 15 percent is far from being considered a noteworthy

return.

How does leveraging work?

Let's assume that the rental income will cover all your

expenses, including the mortgage payments. Taking the same

example, a 7 percent appreciation of your property results

in a $7,000 profit per year. With a 95% financing in place,

you'll be able to get a $7,000 return on $5,000 (your 5

percent down payment on a $100,000 real estate property).

This will provide you with a 140 percent return on your

investment. Not only that, with the same $100,000 you can

go out and purchase 20 investment properties, finance 95%

percent of them, and make an amazing $140,000 profit a year.

This totally beats the $15,000 profit with an all-cash

transaction.

In terms of the additional 20 properties, expect to have a

hard time getting financing for them since usually only five

or six new rental property mortgages are the maximum that

lenders presently allow. Which is why you need to have an

above-average negotiation skills.

Article written By Stu Pearson.