Much has been said about real estate and its wonders. But do you really know the real score on how it creates wonders for your money? After all, different people hold various opinions on how much good do leverage and OPM (other people's money) have.
First of all, always make a qualified mortgage professional part of your team of experts; the examples that follow may not be appropriate or even possible for your particular situation. Some people have the goal of receiving cashflow every month to supplement their incomes while others want long-term financial success through investment appreciation.
Let's look at what choices you can make to achieve your goals. Remember, with real estate, YOU are in control! For the example we'll say you have $20,000 to work with. With this $20K you could put down a 20% down payment on a $100,000 property or a 10% down payment on a $200,000 property. Which one is better?
The answer naturally depends on your particular situation and goal. But let us probe into the differences. With the assumption that you chose the larger down payment, it is possible for you to get cashflow because you will give "lower" mortgage payments and at the 20 percent down payment, you will no longer need mortgage insurance. Do you prefer receiving monthly cashflow? Well then, a larger down payment makes you attain just that.
We'll also assume that the appreciation is 6% for both the $100K & $200K homes. (In reality the appreciation rate could very well be different for each if located in different markets or if property types vary, like a single family home vs. a duplex. We'll ignore these differences for this article). That means after one year of appreciation the $100K home will now be worth $106,000, while the $200K home will now be worth $212,000.
With the 10 percent down payment on $200,000 property, you doubled your appreciation's amount (sans the need to use up a penny or more). Now imagine what you got after a few more years. Amazingly, you compound your money's worth!
In a relatively shorter time, your gain will be sufficient to obtain equity and purchase another PROPERTY so you actually have doubled your properties and compounded their appreciation. On another hand, the cashflow might not be present in the $200,000 property and perhaps there will be times when you have to expend for maintenance costs but look at the greater appreciation and long-term benefits.
Not only are you getting more advantage by using more leverage (OPM) and getting less monthly cashflow, but you are also spared of minding other things. While debt payments and maintenance costs are tax deductions, cashflow is taxable. If you need the monthly cashflow, you can just modify your strategy to accomplish what you think works best for you. Perceptive investors agree that extra cash spent every month results to huge wealth building benefits in the future.
With these in mind, its not surprising that you chose the better one. Start pooling your team of experts now and make the right choice! - 16003
First of all, always make a qualified mortgage professional part of your team of experts; the examples that follow may not be appropriate or even possible for your particular situation. Some people have the goal of receiving cashflow every month to supplement their incomes while others want long-term financial success through investment appreciation.
Let's look at what choices you can make to achieve your goals. Remember, with real estate, YOU are in control! For the example we'll say you have $20,000 to work with. With this $20K you could put down a 20% down payment on a $100,000 property or a 10% down payment on a $200,000 property. Which one is better?
The answer naturally depends on your particular situation and goal. But let us probe into the differences. With the assumption that you chose the larger down payment, it is possible for you to get cashflow because you will give "lower" mortgage payments and at the 20 percent down payment, you will no longer need mortgage insurance. Do you prefer receiving monthly cashflow? Well then, a larger down payment makes you attain just that.
We'll also assume that the appreciation is 6% for both the $100K & $200K homes. (In reality the appreciation rate could very well be different for each if located in different markets or if property types vary, like a single family home vs. a duplex. We'll ignore these differences for this article). That means after one year of appreciation the $100K home will now be worth $106,000, while the $200K home will now be worth $212,000.
With the 10 percent down payment on $200,000 property, you doubled your appreciation's amount (sans the need to use up a penny or more). Now imagine what you got after a few more years. Amazingly, you compound your money's worth!
In a relatively shorter time, your gain will be sufficient to obtain equity and purchase another PROPERTY so you actually have doubled your properties and compounded their appreciation. On another hand, the cashflow might not be present in the $200,000 property and perhaps there will be times when you have to expend for maintenance costs but look at the greater appreciation and long-term benefits.
Not only are you getting more advantage by using more leverage (OPM) and getting less monthly cashflow, but you are also spared of minding other things. While debt payments and maintenance costs are tax deductions, cashflow is taxable. If you need the monthly cashflow, you can just modify your strategy to accomplish what you think works best for you. Perceptive investors agree that extra cash spent every month results to huge wealth building benefits in the future.
With these in mind, its not surprising that you chose the better one. Start pooling your team of experts now and make the right choice! - 16003
About the Author:
Alexandria P. Anderson is a licensed Minnesota Realtor that uses the MN Real Estate Listings to help her clients to find and purchase Minnesota Homes for Sale.
