How to Leverage in Real Estate Investing
Mr. Sunil Kilaru informed us by nature, real estate is one of the easiest assets to leverage. Not only is it easy to leverage the financing of it, but the terms are better compared to any other kind of loan.
Leverage is such a critical part of real estate ownership that we often take it for granted. Where else can I borrow money from A (the bank), pay that loan back with money from B (the tenant), and keep the difference for myself? The too safe leverage is cash flow. If you make sure your property produces more income than it costs to own, the leverage itself doesnít matter as much. Those who "over leverage" property are those who borrow so much against it that they lose money every month.
When you take out a loan to buy real estate, you typically pay it back with the rent money from the tenants. One of the best parts of investing in real estate is the fact that not only are you cash flowing, but youíre also slowly paying down your loan balance with each payment to the bank.
In the beginning of these loans, the majority of the payment is going towards the interest of the loan, not the principle. This means you arenít making much of a dent in the loan balance until youíve had the loan for a significant period of time. With each new payment, a larger portion goes towards the principle instead of the interest.
After enough time passes, a good chunk of every payment comes off the loan balance, and wealth is created in addition to the monthly cash flow. The best part is, itís your tenant paying this off for you, not yourself. Paying off your loan is another way real estate investing works to grow your wealth passively, with each payment taking you one step closer towards financial freedom.
Mr. Sunil Kilaru further added that wise investors donít bet on appreciation. They purchase properties on a sound judgement that the property will generate more income than it costs to own. For these folks, who "cash flow" positively, they donít care what the market does. If prices drop, they are safe. If prices rise, they have more options.
Sunil Kilaru is an accomplished Entrepreneur in the fields of Infrastructure and IT. He is Chairman of PRIMUS (www.primusglobal.com), an IT Solutions & Services Company with branches in Dallas, Bangalore, yderabad, Vizag and Pune.
by: Sunil Kilaru