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Fat Bear Strategy #3: Leverage

by Sam Perren

400 words (2 minute read)

Originally Published: 2012-10-18

 
sam

 

Hello!

Thanks to everyone for your emails and suggestions, I will be implementing them in the coming months. If you have any suggestions for future content, I’m all ears!

Last post was about Real Estate as a hedge against inflation, today is about Fat Bear strategy #3, leverage.

 

lever

In real estate, the greatest force is leverage. Because real estate is a low risk investment, there is plenty of inexpensive money available for mortgages. This makes it possible to purchase and control real estate for a fraction of the cost. At the time of writing, conventional loans are available for as low as 20% down at 3.99% interest for 10 years!

 

This means you can stretch your investment capital much further, and if you see below, you will understand why this is so important.

Now, suppose you held the investment until the value doubled, thanks to Inflation and Appreciation as previously discussed.  If you sold your investment in each universe, this is what each of “you” would collect:loonies

Now that you can see the power of leverage, I would guess that you would prefer to live in a leveraged universe.  I must express caution here though.  There is such thing as too much leverage, particularly in an environment where interest rates are rapidly rising, and this will be the topic of one of my future blog posts.

The other benefit of leverage(a mortgage) is you are getting someone else to pay for your investment. Even without any appreciation at all, at the end of the mortgage, your tenants have paid for most of an investment for you.

The “Fat Bear” strategies clearly demonstrate to me why buy-and-hold Real Estate is the perfect investment. However, purchasing property just anywhere can be a recipe for disaster. It is important to know WHERE to purchase your investment to ensure all these strategies are working in your favor.

Please continue reading for a Crystal Ball that shows you how to tell an over-performing property from laggard.

Until next time,

About the author: Sam Perren has helped dozens of investment partners acquire real estate, representing over $16Million CAD in purchases with rental income of over $100,000/mo. If you'd like access to Sam's "deal of the week" please click here.