How To Buy More Property With Little Cash

Kelowna AccountantKelowna accountant, Ken Davidson, a real estate investor himself, shares his thoughts on using leverage to purchase real estate.

Once the real estate bug bites you, it’s tough not to start considering great prospects for new real estate investments. The common issue I see with most people is the trouble with knowing when you are overextending yourself and taking on too much risk. When you are using leverage, it’s often for the possibility of a high return on investment but you must be careful.

Related: Taking A Risk In Business: What Your Kelowna Accountant Won’t Say

Understanding Your Comfort Level

Leverage is a personal preference as far as I’m concerned. I believe you have to have a certain level of risk tolerance and an understanding of exactly what you’re getting into and how far you want to go into it.

Leverage can bankrupt people. If not done correctly and with your open eyes, it can cause a catastrophic situation. Yes, you can have magnificent rewards and gains, but you must remember that it magnifies gains and it magnifies losses.

Kelowna AccountantWhat’s Your Risk Tolerance?

If you’re thinking about a project and you’re prepared for magnifying those gains and losses, you have to understand that the risk tolerance is up and down as well. If you aren’t the type of person that can handle the up’s and down’s then be cautious of using leverage.

If you find it difficult to cope under stressful financial situations, using leverage might put you in the regular state of unease that will make that profit at a greater expense…your emotional and mental well being.

Related: 5 Golden Rules To A Successful Investment Strategy

It’s All About Return

When you think about wanting to buy something and wanting to leverage it, obviously people think about rates and what’s important.

The truth is it’s not about the rates, when it comes to real estate investing, it’s about your return. There is no problem paying somebody a good rate of return on borrowed money, as long as your rate of return is higher than that. Any Kelowna accountant will look at it on the books as a profit or loss, simple as that, and that’s the type of objectivity you should retain when using leverage.

The flexibility, fees, the documentation…there are a whole bunch of things that need to be looked at when you’re making a decision to increase your leverage on real estate investment projects. Don’t get hung up on the rate you are getting charged, it’s a smaller piece of the pie in the grand scheme of things.

 

One Response to How To Buy More Property With Little Cash

  • Clint Cora says:

    I certainly agree that it’s the return that matters the most when it comes to using leverage in real estate investments or any other types of investing for that matter. Using leverage is one of the secrets in building a real estate portfolio that contributes to overall future wealth. This is known as good debt rather than the bad debt that consumers often rack up.

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