New to Real Estate · New York, NY · Member since 2023 · 18 posts · 10 votes
Hi,
I often hear about the power of leverage in Real Estate and the benefits it could bring. But, is this mainly because most people can only afford a certain amount for the down payment? What if an investor is able to afford to buy properties with all cash - should the investor still decide to use leverage regardless? I would assume you would cash flow much more if there is no debt. What are some reasons to use leverage even if you don't need it? If decided to use debt, how should an investor think about how much LTV to take out (only the amount needed / to maximize the lendable LTV, etc)? If any experience investors would like to share their thoughts, I would love to hear them. Thanks!
Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes
1y
I choose leverage for a few reasons at this stage of my investing.
1. Want to grow total assets. As you mentioned real estate is expensive, but being able to leverage, smartly, makes a huge difference in the amount of assets you can get for your investment. There is no other investment that you can get the full benefit of owning the entire unit but only pay for a piece, but actually have ownership...as long as you pay your mortgage of course.
2. Tax benefits. To maximize your tax benefits leverage allows you to both have a larger asset base, but also have more accessible depreciation at tax time. Let's say a property cash flows $12000 if you buy it with cash but you can only depreciate $6k of that based on its value, you still are exposed to $6k of taxable income exposed. If you bought two homes at the same price and did a 50% down payment and made $6000 cashflow per year, now your depreciation on each of the two properties covers the $6k from each property (or whatever the smaller number is), but you have 2x the assets.
New to Real Estate · New York, NY · Member since 2023 · 18 posts · 10 votes
1y
Great takes! I have never heard of that benefit from a depreciation perspective so thank you. How about in terms of LTV? How do you decide how much LTV to take out (given you can afford to be flexible), also being mindful of such a high interest rate environment?