Should You Pay Cash or Use Leverage in Your Real Estate Investing?

You have a little cash in your pocket and you’re ready to make your first investment. But, should you use every dollar that you have to get started?

You’ve learned as much as you can, saved some money, and you’re ready to invest in real estate. But you still have some questions about financing. Should you spend all of your money? Or should you get a bank loan so that you have more money to invest?

In this article, I take a look at the power of leverage and how you can use it during your real estate journey.

Maximizing Leverage

Let’s say that you’ve got $50,000 from an old 401k that’s sitting in the bank and doing nothing. It seems natural to spend all of that money on buying your first property, right?

Now, you could do that…

Or you could do what I did – maximize your leverage.

I used my money to get myself a pair of bank loans. And those two loans allowed me to invest in two properties, rather than just one. This means that I multiply my cash flow.

Yes, I now have two loans.

But I also have two properties, each of which generates its own rental income. That means my cash flow is much higher than if I’d used my money to buy a single property. And of course, I get to leverage the tax benefits from two properties, instead of just one.

That brings us to a question…

How do you maximize the $50,000 you have sitting in that old 401k to accelerate your investing journey?

I have a few steps for you to follow.

Step #1 – Find the Money

When I talk about finding the money, I mean looking for money that isn’t doing a lot for you right now. In my example, that’s the $50,000 sitting in a 401k. But it could just as easily be money in a stagnant IRA or a low-interest savings account.

You’re going to put this money to work instead of letting it just sit there.

Step #2 – Find the Best Loan Available

The best loan available varies depending on your situation.

For example, veterans can leverage a Veteran Loan, which comes with its own benefits. Teachers may be able to use their credit unions and somebody who works in a bank may be able to get a discount with that bank.

The key is that you find the cheapest loan that you can find.

Step #3 – Always Do the Math

The numbers don’t lie.

It’s possible that your $50,000 could help you land one property that has a higher cash flow than two lesser properties. Run the numbers, figure out what the ROI of each option looks like, and pick the one that works best for you.

What Numbers Should You Look At?

That’s the big question.

And it’s a question that the team at Cash Flow Savvy can help you with. The key numbers to look at vary depending on your strategy. But if you work with us, you’ll figure out what they are, which puts you a step closer to maximizing your leverage.

Ready to get started?

Get in touch today to discover if we’re a good fit for you in your investing journey.

Leave a Comment