I’m new to real estate and have very little capital, so i was looking into a few ways to create more capital and i came across “leveraging”. Can someone please explain in depth what is leveraging and how do i use it?
Leveraging is when you use a small amount of money to control a large amount of money. Let's say you have $20,000 to invest. You buy $20,000 worth of stock, you can gain interest on $20,000. No leverage.
Invest $20,000 to buy a $100,000 home. You can gain interest on $100,000 even though you only spent $20,000. That's how you use leverage in real estate investing.
It would probably help to read a book on real estate investing to better understand that concept, how to analyze and buy smart, how to finance purchases, how to manage tenants, etc. The book on Rental Property Investing by Brandon Turner may be a good place to start.
Nathan G. pretty much laid out a good example. So far what Nathan said is using OPM (other people's money) that you do through borrowing or raising capital for your investments. What this does is reduce your financial input into the deal and thus increases your return on investment on the deal since you put less into the deal to make more.
But this is only one point of leverage. You can leverage 1) other people's time, 2) other people's expertise, and 3) other people's education. You can pay other people to 1) leverage their time while you work on the more important stuff, 2) leverage their expertise in an area where you're weak to get something done better (could be a partnership), or 3) leverage their education to speed up your learning through coaching/mentoring.
I actually just finished the book a few days ago. It’s the reason why I even have this app. I asked the question to again a better understanding of how to use leverage if i can on my first buy. Your reply was great tho.
Never even cross my mind to use any of those, thanks. Just that short explanation provide me with a lot of information.