Using leverage to increase ROI

12 Replies | San Antonio, Texas

Was wondering if anyone had any thoughts and ideas about using leverage to increase ROI. Anyone successfully completed these types of transactions before? They look rather brilliant to me and if they are how do I go about finding someone who is willing to fund projects?

Thanks for any input on this.

Matt, using leverage is a part of almost every real estate deal. It is one of the great advantages of REI. But it's not some complicated concept. Get a mortgage on whatever you are buying. Your cash flow will be slightly decreased, but your ROI will be a lot higher, and you'll have more funds available for subsequent purchases.

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@Chris Eaker I have some cash that I could make a small deal that I am looking at it. Or if I should limit my amount of cash investment and borrow the rest and then use my remaining cash to fund another deal instead of all in on one. That was the question I was asking.

@Matt Jackson any time you get a loan on a property you are using leverage. 

I think you are asking about using 100% financing ans saving your cash. 100% financing is not very practical in today's market. Banks don't like when you borrow the down payment. They want you to have cash in the deal so they know you are committed to making it work. Although that seems to be changing. 

Leverage does increase you ROI but it adds risk. The more leverage the more risk.

@Ned Carey Yes, If I could limit my exposure by limiting the amount of cash out of pocket is what I was referring to. I know that 100% financing is out of the question but if I can get away with 10% versus 20% out of pocket then I'm doing well.

For investment properties, banks want between 20-25% down. They want you to have skin in the game. Sometimes you can get the seller to finance the down payment. They typically charge higher interest rates. I'm not sure how banks feel about seller financing. I haven't used seller financing, so I'm not an expert. You could do two smaller deals, but banks will want you to have sufficient income to cover both mortgages. They heyday of no doc (no questions asked pre-2009) loans are gone. I don't if you've watched any of the podcasts, but I highly recommend them. 

@Matt Jackson you definitely do not need 20-25% down if the deal is right.  I would recommend talking to @Jason Hirko and getting your numbers on a spreadsheet and seeing what really makes sense. Look at your ROI, but also just look at your net cash. A lot of time can get sucked up by these flips, you really want to make sure you're maximizing your net profit.

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