Tag Archive for: how to maximize leverage

How to Make Wealth NOW in Real Estate Investing

In real estate investing it all comes down to leverage. Leverage or loans make up roughly 50% of what makes a successful real estate investment. Funds that are faster, easier and cheaper will consequently drive your investments and create the wealth. So, how can you make wealth now? In real estate it is imperative that you create a step by step plan regarding what you need in order to accomplish your investment goals. Let’s take a closer look at how you can get started!

First and foremost, you need leverage!

Make sure that you have the right leverage and that you are prepared before jumping into a deal. It is so easy to let your emotions drive your business decisions. In doing so, there is a tendency to overspend and get behind the eight ball. Take a step back and research your options, contact lenders, and analyze all of your numbers. In a nutshell, even if you find the right deal, yet you don’t have the money, then you really don’t have a deal at all.

Second, find the right property.

Again, take a step back and create a plan, research properties, and compare them as well. It may take a couple months to research and test things out. In taking the time to get comfortable with the process, you will in turn be more successful. You need to go through a live example and take a couple test runs in order to understand everything that is involved. Get your hands dirty and you will figure out the nitty gritty stuff down the road. It is important to not just conceptualize the project. Instead just do it! 

How do you get into the game?

As a new investor that is just getting started, it can be very daunting. There are three ways that you can get the ball rolling.

1. Find a mentor

It is helpful to find a successful real estate investor to mentor you through the process. By finding a good flipper right now, you will not only have the opportunity to invest with them, but you will be able to walk through the steps as well. Just be careful not to hand over your money to someone who will not use it properly. Do your research and take the time to find the right partnership. 

2. Look into the 12 week year program

Currently I’m working on completing a 12 week year program. This method is very structured and helps you complete a year’s worth of work in only 12 weeks. As a result, investors avoid the pitfalls and low productivity that occurs when the goals are stretched out throughout the year. 

3. Do your research every day

If you are just starting out in real estate investing, it is important that you get up every day and look at properties, contact realtors, contact wholesalers, and find lenders that will help you achieve your investment goals. The more you talk to them, the more likely they will be to work with you in the future. Now this process should only take 15 to 20 minutes, not 8 hours. If you start out slowly and build your database, then in 3 months time you will be better off compared to others who jumped in right away.

Make wealth Now!

Taking the time to get prepared, will not only increase confidence, but more importantly it will set you up for success. Likewise, you will also be able to regulate your emotions, so they will no longer dominate your business decisions. Ultimately you do need some emotions to drive your business, however, it is important to let the numbers guide your business decisions. Avoid getting behind the eight ball by making investment moves that will set you up to win the game of creating wealth. 

Watch our most recent video to find out more about how you can make wealth NOW!

Do you have more questions about setting your business correctly? Do you need additional information regarding lending options? Contact us today!

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Make real estate leverage easy or hard… Your score, your choice.

Leverage is the secret to successful real estate investing. What they say is true: it takes money to make money.

The cheaper, easier, and faster your real estate leverage, the more you’ll enjoy investing.

The number one factor in how cheap, easy, and fast real estate leverage is? Your credit score. Let’s go over how that works.

How Credit Score Impacts Real Estate Leverage

A good credit score will help you find an affordable loan – even if your experience or income is limited. The better the score, the more doors will open for you.

Barriers fall away as your credit score rises. The loan you get with a 780 score is much simpler and cheaper than the one you’d get with a 640 score.

  • Cheaper money means you’ll make bigger profits with your deals.
  • Easier money means less paperwork and hoops to jump through.
  • Faster money allows you to take advantage of good deals when they pop up.

To succeed in real estate investing, you want all three working for your leverage.

Credit Usage vs Real Estate Leverage

Good investors pay their bills on time every month, keep a mix of credit, and practice other good habits that make up their credit score.

One of the most common obstacles that keeps good investors from the best money sources, however, is credit usage.

Credit usage is a percentage that says how much of your credit limit you’re using. Many investors use their personal credit cards to cover the costs of their investment properties. But this usage lowers personal credit scores and raises the cost of doing business.

Poor credit usage is a hidden enemy sabotaging many investors’ careers.

Winning Against Usage

If you’re in this real estate leverage game to win, then you need to understand the rules to win.

Rule #1: Keep your credit score up and your cost of funds down

One way to do this is to get credit cards off your personal name and into your business name. This allows you to continue using credit cards for projects, but they won’t impact your score in a negative way.

Keeping your credit score safe allows you to obtain cheaper, easier, and faster funding not only for your business but the rest of your life, too. Don’t let your investing business drive up your cost of living.

Where To Go From Here

If you want to learn more about how to obtain business credit cards you can find some great information on our blog.

Check out other real estate leverage information on our YouTube channel.

You can always send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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You use real estate loans to leverage deals, but which loan is best?

You should have one goal with leverage: maximizing cash flow on your investments.

There are 4 main types of real estate investing leverage:

  • Hard money
  • Bank financing
  • Hedge funds
  • OPM

But where do they each fit? How can you tell which type of leverage is right for your deal?

It depends on what your particular deal needs most to succeed – speed, low pricing, flexibility, or a little bit of everything.

Speed with Hard Money

What if you have a great deal, but you’re required to close in 5-7 days? In that case, you need hard money.

You’ll meet sellers in your real estate career who just don’t want an extended closing. These sellers would rather you close quickly – and they’ll give you a better deal on the price if you can do it. Sometimes, taking too long to secure your financing can get you kicked out of a deal.

You can call your hard money lender and get leverage fast. There’s no hold-up for an appraisal or trudging through a lengthy underwriting process. Hard money is specifically designed for real estate investing.

Real Estate Loans to Leverage Deals for Every Investor

Even seasoned real estate investors, who do dozens of deals every year, still require hard money from time to time. Every investor runs into deals where they need to close quickly. Whether it’s because your bank won’t be ready in time, you’ve maxed out your line with your hedge fund, or some other unexpected circumstance, you need a hard money lender in your portfolio for speed.

Fast closing can capture a lot of equity on a property. Despite hard money being one of the most expensive forms of leverage, purchase price savings on a quick close can far outweigh the cost of the loan.

Pricing with Banks

If hard money is for speed, then banks are for price.

Finding a bank that loves working with real estate investors is a valuable weapon. If you can build a relationship with the right bank, you can get a better rate and a better closing cost.

Some circumstances when you’d benefit from getting your leverage from a bank include:

  • Whenever you have the time to close. If you can afford to wait for appraisals and underwriting, your loan costs will be much cheaper.
  • If the rehab work will take longer than 6-9 months. When you close on a flip with hard money, you need to complete construction on the property within a month or two. If you use a bank loan, you can afford to spend longer fixing up the house.
  • Any time you want more cash in your pocket! Banks have half the interest rates of hard money lenders. Lower rates and fees mean more money in your pocket by the time your property sells.

Flexibility with Hedge Funds

You might find yourself in need of a lender who is more flexible than banks, but still has an “unlimited” cash supply. In that case, hedge funds will have the right leverage for you.

Hedge funds are also known as capital funds or private equity. These are firms that can fund real estate investments across multiple states, have a lot of money available for both flip loans and DSCRs.

A problem with banks is they’re limited to one state or region. A problem with hard money and OPM is that funds can run dry. Hedge funds solve those problems.

Keep hedge funds in your portfolio to have a lender who can handle every deal. They can grow with you as you move across state lines and take your investment career to the next level.

Gap Funding with Real OPM

OPM stands for other people’s money. It comes from a real person you know (who’s sitting on a lot of cash!). They want to put their money somewhere secure that’ll give them a better rate than a bank… So they loan it to you.

You can give your OPM lender a rate of 5-6% back. For you, this beats the 9-12% rates of hedge funds or hard money. For your lender, this beats the 1-2% rate they’d get from a CD or savings account.

OPM can be used to fill in the gaps of any project. It could cover down payment or construction costs, or potentially fund entire properties.

With reliable OPM, you have access to the speed of hard money, the low cost of a bank loan, and the flexibility of a hedge fund.

The main drawback of OPM is simple: it can run out.

The Right Real Estate Loans to Leverage Deals AND the Right Lender

No one form of leverage is going to be right for every single deal. Understand this: You need a mix of all four types of loans to be truly successful as a real estate investor.

And not only do you need the right loan, but you also need the right lender. Getting to know the lenders in your area is vital.

Find Lenders Whose Real Estate Loans Leverage Deals

Not all banks are willing to work with real estate investors. Banks tend to have a “specialty,” whether car loans, credit cards, or even HELOCs. Many banks don’t want to do deals with real estate investors.

It can be the same with hard money and hedge funds – they’re all looking for a particular client. One of your deals may not fit the criteria for those lenders, but another one will.

There is no one-size-fits-all. Reach out and find the lenders that fit your needs.

Find lenders who focus on real estate investing loans regularly – not lenders who will help investors every once in a while. They’re the lenders who will want your business, and will do everything they can to keep you. For a lender who specializes in real estate investing, a successful investment for you is successful for them, too.

If you have any questions about:

  • The different forms of leverage
  • How to find a good lender
  • Which loan is right for your deal

Send us an email at Info@TheCashFlowCompany.com! Or visit our YouTube channel for more info on cash flow in real estate.

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Text: "How to Maximize Leverage"

Leverage is a powerful investing tool. How does it look to maximize your leverage?

A real estate investor’s goal is to maximize leverage – get the best, cheapest, easiest leverage available.

This means going an extra step:

  • Having great credit.
  • Having great income.
  • Coming to the lender prepared.
  • Having investment experience.

In a previous blog post, we broke down the difference using leverage makes for your income and net worth.

Now, let’s say you’ve done everything right, and you’ve earned yourself better leverage from your lender.

What happens when the same scenario is taken to the next level with top-tier leverage?

80% Leverage

To start, we’ll say you meet the bank’s criteria, and they agree to lend you 80% (or $80,000) on each $100,000 house you purchase.

Income with Maximized Leverage

Your down payment per property is now only $20,000, so you can afford 5 properties. But since you borrowed more money, the mortgage payment is higher, and the net rent goes down to $750/month.

Five properties with an income of $700 per month is $3,500 per month. This works out to be $42,000 per year. Annually, that’s $6,000 more than using a 75% loan, and $27,600 more than using no leverage at all.

Equity with Maximized Leverage

Lastly, let’s look at the wealth side with maxed-out leverage.

Thirty years adds $750,000 to the value of the 5 homes. All that money is added to your net worth.

As a result of the $750k of equity plus the $500k of the original purchase of the homes, your net worth increases by $1,250,000.

Once your mortgage is paid off and you own all 5 properties free and clear, you earn the full amount of rent per month. This is $1,200 × 5 properties, or $6,000 per month!

Using good leverage has the potential to make you literal millions of dollars over buying investment properties in cash.

Read the full article here.

Watch the video here:

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How to turn $100,000 into $1.25 million by real estate investing with leverage.

A real estate investor’s most valuable tool is leverage.

Without it, you can’t buy, can’t hold, and can’t profit from your properties.

To prove our point that leverage is the most important step in real estate investing, let’s ask the question:

If you had the free capital to spend, would you make more money by buying a home outright or by using debt (leverage)?

Let’s break down a simple transaction to answer this question.

How Far Can You Get with $100,000?

First off, we’re going to use simple numbers in this example.

Of course, home costs and rent costs will change in different markets and different areas. But we’ll run with these numbers – even if they aren’t 100% accurate, they’ll paint a good picture of the math that backs up leverage.

Let’s say you have $100,000 at your disposal that you want to invest in real estate.

Income Real Estate Investing with NO Leverage

To begin with, you could take all the money and buy one property valued at $100,000 outright. You’d invest the full $100k, own the house free and clear, and receive $1,200 of net rent income per month.

This adds up to $14,400 per year you’d earn from a house you fully own.

Income Real Estate Investing WITH Leverage

Now let’s see how it plays out when you involve a lender rather than buying outright.

You could offer to put down $25,000, and the lender might agree to loan you the other $75,000. That $75,000 covered by the lender would be your leverage.

And now, instead of pouring all your money into one property… you only have to put in $25,000.

Take your $100,000 and divide it by 25,000. That’s 4 properties you could buy with leverage. For the same out-of-pocket amount as buying 1 property outright.

However, because you’re now paying a mortgage on these rental properties, your monthly net rent goes down.

Your income is now $750 per property. Multiplied by 4 properties. So this brings in $3,000 per month, or $36,000 per year.

You have the potential to make an additional $21,600 per year – just from using leverage.

No matter what amount you start with (in this case, $100,000), using leverage brings in more income.

How Does Leverage Change Your Net Worth?

Monthly rent income isn’t the only way a rental property makes you money. It will also increase in value.

When a home appreciates, it increases your total net worth. The average yearly appreciation rate for real estate across the country is 5%.

It’s clear that leverage impacts income, but what about wealth?

Let’s throw this 5% number into our equation and see what happens with leverage.

Net Worth No Leverage

If a property was purchased for $100,000, that one home would increase in value by an average of $5,000 per year.

So, the one home you bought outright would give you $150,000 in equity after 30 years.

You bought it for $100,000. After 30 years, you’re adding $150,000. So that’s a net value of $250,000.

Net Worth with Leverage

Next, let’s see the equity of the 4 properties purchased with leverage.

Multiply your 4 properties by the $5,000 in value they each increase every year. Your portfolio will appreciate $20,000 per year.

Over a 30-year span, your 4 properties would add $600,000 to your net worth. Add the original values of the homes (4 × $100,000), and your net worth increases by $1,000,000.

A million using leverage definitely beats the $250k you got from buying 1 home outright.

What If You Maximize Your Real Estate Investing Leverage?

A real estate investor’s goal is to maximize leverage – get the best, cheapest, easiest leverage available.

This means going an extra step:

  • Having great credit.
  • Having great income.
  • Coming to the lender prepared.
  • Having investment experience.

Let’s say you’ve done everything right, and you’ve earned yourself better leverage from your lender.

What happens when the same scenario is taken to the next level with top-tier leverage?

80% Leverage

You meet the bank’s criteria, and they agree to lend you 80% (or $80,000) on each $100,000 house you purchase.

Income with Maximized Leverage

Your down payment per property is now only $20,000, so you can afford 5 properties. But since you borrowed more money, the mortgage payment is higher, and the net rent goes down to $750/month.

Five properties with an income of $700 per month is $3,500 per month. This works out to be $42,000 per year. Annually, that’s $6,000 more than using a 75% loan, and $27,600 more than using no leverage at all.

Equity with Maximized Leverage

Lastly, let’s look at the wealth side with maxed-out leverage.

Thirty years adds $750,000 to the value of the 5 homes. All that money is added to your net worth.

As a result of the $750k of equity plus the $500k of the original purchase of the homes, your net worth is increased $1,250,000.

Once your mortgage is paid off and you own all 5 properties free and clear, you earn the full amount of rent per month. This is $1,200 × 5 properties, or $6,000 per month!

Using good leverage has the potential to make you literal millions of dollars over buying investment properties in cash.

How to Start Maximizing Your Leverage as a Real Estate Investor

Our goal is to help you understand and use the power of leverage. We scour the markets looking for debt with the best terms – the lowest down payments, the lowest credit requirements, and the lowest rates.

If you’re looking to maximize your leverage, email us at Info@TheCashFlowCompany.com. We’ll help you with questions and deals, and get you headed in the right direction.

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