The Power of Leverage to Build Wealth

Are you looking for a way to build wealth with a minimal investment? If so, real estate is a good option to explore. Many people do not realize just how simple it is to become a real estate investor and use the power of leverage to build wealth virtually overnight.

If you are considering investing in real estate, here are some of the things that you might not already know:

- Read the classified ads. A good place to look for investment properties is the classified ads of your local paper. And, not only the real estate section. You should also take notice of the legal section and look for estates that might need to liquidate a property. Often times, when an estate needs to sell a property it presents and excellent investment opportunity at below market pricing.
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- Go to garage sales! Believe it or not, one-fifth of the people who have garage sales are preparing to move. When you see a garage sale near a property that catches your eye, be certain to ask the owner whether they might be planning to move soon. You might also want to take notice of the surrounding properties as well, and ask if any of the neighbors might be planning to move. Often, making contact with the seller prior to the property even being listed for sale means that should you be interested in purchasing there is already a pre-existing relationship. This is great, because the seller will have some idea of who is trying to purchase their property.

- Research any liens on the property. Before you purchase a property, be sure to ask the seller whether there are any current or impending liens against the property. A current lien will most likely have already been disclosed to you. However, there is no required notification of impending liens. An impending lien could be something like the city putting in new sewer pipes and requiring you to pay the bill. As you can see, you should definitely take the time to investigate impending liens.

- Understand how tax laws are structured. There are numerous tax benefits to be realized when you invest in real estate. For one thing, an investment property is viewed by the government as a depreciating asset. This does not mean that the value of the property is actually depreciating. Instead, it means that the property’s taxable value is being reduced taking into consideration necessary repairs and declining condition. Eventually, the asset will be valued at zero meaning that you will no longer be taxed on the value of the property.

- Protect your assets. It is important to make sure that your assets are protected; particularly those assets not directly connected to your investment properties. Always carry a comprehensive insurance policy on your properties and learn about other ways to protect yourself in the event of a lawsuit. Some options might include the establishment of a trust or a family-run LLC. Keep in mind that you will need to provide justification for your actions, so always consult a professional to find out what your safest option would be.

Just as no two properties are identical, no two investors are identical. While you may have similarities to other investors, your style must be truly you own if you want to be successful. Get connected with other investors in your area, share thoughts, ideas and strategies in order to find out if you are on the right track. The information above might be a good way to start a conversation with another investor.

Property Investing: Fairly Low Risk

Real estate investors are typically people who want a way to develop financial security and a comfortable retirement income. To do this they’ve chosen a method of investing that is fairly low risk and requires a minimal investment up-front.

Real estate investors tend to focus on the development of equity, which enables them to leverage one property to purchase a second and so on. While you may not be interested in becoming a real estate mogul, even a single property can bring you opportunities that you never before thought possible. Here are some things to consider if you are thinking about investing in real estate:

- Understand “negative cash flow”. Before you make the decision to invest in real estate, you must first understand the idea of negative cash flow. Negative cash flow is very common with investors who have little or no money to invest in their first property. What the term means is that for some length of time, you will be putting more money out than you are bringing in. While the idea of negative cash flow might seem daunting, consider this. If you are purchasing an investment property with no money down, the cash that you will need to pay out of pocket is the equivalent of the down payment that you would have normally made to the lender. It is always best to enter any investment with true knowledge of the risks and benefits. Negative cash flow is something that you must learn about prior to making the decision to purchase an investment property.

- Get it in writing. If you decide to purchase a property by way of assuming a loan, you will basically be writing a check to the seller for the difference between the selling price and the amount remaining on the mortgage. In this case, you must request a statement showing the current loan balance before signing an agreement. Otherwise, you may find out quickly what a difference a few thousand dollars can make – particularly when those dollars are coming out of your pocket.

- Find out what you need to know to be a landlord. If becoming a landlord is your goal, then you will want to get familiar with what is required when it comes to managing tenants. There are many different situations that you will want to prepare for, contracts that you will need to prepare and many other aspects of property management to consider.

- Know what tenants have been promised. When purchasing a rental property with existing tenants, always ask the seller to certify in writing that he/she has not made any agreements with the existing tenants that might have an impact on your responsibilities. For example, if the seller promised a free month’s rent with a lease renewal – you need to know! If you are not aware of these agreements, you are not required to honor them. However, if you intend to keep the same tenants it is important that you honor any agreements and factor your costs into the purchase agreement.

- Understand the tax implications for the type of financing you choose. Be aware that if you use a home equity loan to finance the purchase of an investment property, you will not have the same tax benefits as you would if you used a traditional mortgage program. The cost-savings may make using the equity loan a better choice, but be sure to investigate carefully.

Hopefully, the information presented here has given you new insight into the world of real estate investing. Our intention is that you can now take this information and put it into play in your own investment plan. Careful planning is the first step to financial freedom, and real estate is an excellent vehicle for carrying out the plan.