A Simple Lowdown on Leveraging as a Multifamily Investor
If you’re hoping to make money as a multifamily investor, leveraging is one of the best ways to increase your potential return on investment.
But how exactly does ‘leveraging’ work? Many people grasp the approach in principle but are fuzzy on how it rolls out in practice.
Simply put, leveraging is using borrowed capital to boost profit from your asset.
For example, in the case of a mortgage most banks are willing to lend 70-80% of the value for a multifamily property. The reason for this is because multifamily real estate is a less risky investment. A building of this nature typically maintains a monthly cash-flow even when some of the apartments in the property are vacant or there are tenants lagging behind on rent.
So with your 20% you’re leveraging 80% to can get 100% of the cost you need and full control of how to use it to prompt profit.
Say, you have $1,000,000 to spend on a multifamily property. You could side-step the banks and use the full amount to buy an apartment building for that price.
But what if you used that money as a 20% deposit on a property worth $5 million, leveraging 80% from your lender?
Twelve months later, at a plausible 5% increase in value on both properties, you’d either have a building valued at $1,050,000 (that’s the first purchase) or you’d be looking at real estate worth $1.25 million (that’s the second purchase where you leveraged 80%.)
The story we’re telling here is quite simple: the more you leverage, the higher the potential profit as your property appreciates in price.
And, of course, the next steps are up to you. You have a choice of cashing in the gain by selling the asset or using the equity to borrow against it and build up a larger investment portfolio. Though, of course, for the first few years you can also sit back and enjoy the benefits of enjoying regular cash flow while watching your property appreciate in value.
However, even the savviest investor knows there are some risks involved in leveraging. But that’s why we’re here. As experts in multifamily investment strategies, we help you make the right decisions so that you can mitigate the potential pitfalls of less experienced real estate investors.
Leveraging as a multifamily investor is one of the best ways of creating long-lasting wealth – but only if you’re ready to really learn how.
