THAT BEAUTIFUL LEVERAGE:
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Answer: Leverage arises because ALL of the income and because ALL of the income and ALL of the appreciation belongs to the property holder regardless of the amount of the loan. To illustrate, assume a $100,000 property was purchased for only $10,000 cash and a $90,000.00 mortgage loan. Five years later, the same property is sold for $150,000 (a 50% gain in value). After paying off the $90,000 mortgage, the investor would realize, not a 50% gain, but rather a 500% gain on his initial cash investment because he only invested $10,000 for the property. That’s leverage! |
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