As an owner of an investment property you are able to seize all of the power of investment real estate while only being required to make a small downpayment. This is called leverage.
Your investment has the potential of generating increasing cash flow over the years as rents increase and your mortgage payment stays fixed. And remember, your tenants will pay down your mortgage, so you have the potential to receive rental payments as long as you choose to own the property. An income you may never outlive!
Diversification and leverage are the keys to unlock the powerful wealth building potential of real estate. Diversification protects you from the volatility of one specific asset class and leverage lets you participate in 100% of the gain on an investment property while putting up only a small percentage of the real value.
You can invest in real estate with a relatively small amount of money in relation to the overall asset. The reason? Real estate is a secure asset to borrow against. It can be leveraged, allowing you financial returns that aren’t available from many other types of investments.
What makes leverage such a powerful real estate investment tool for your future? Your returns are magnified because you benefit from the growth of the entire value of the property, not just the amount of cash invested (your down payment).
- The tax advantages – The potential ability to shelter gains from your properties from taxation. Until you sell a property, or claim rental revenue as direct income, you may not be taxable. Additionally, many of the expenses associated with owning and operating a property (such as mortgage interest, maintenance fees and property taxes) may be tax-deductible.
- Hedge against inflation – Although it’s hard to remember the spiraling inflation rates in the 1970s and 1980s, well-selected real estate can constitute an excellent hedge against them. In inflationary times, the buying power of your money decreases.
Holding assets like real estate can maintain the buying power of your personal net worth, while paying off your mortgages in future inflated rental income dollars.
- Your tenant pays off your mortgage – (Real Security) Through monthly rental payments that exceed, or are equal to, your monthly mortgage payments and other expenses, your tenants actually pay down your mortgage. Once the mortgage is paid off, the tenants’ rental payments provide you with a monthly income that may continue as long as you continue to own the investment property.