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Leveraging Denver Commercial Real Estate to Extend Your Portfolio


January 24, 2018

Deciding what, when, and where to buy real estate has variable factors associated with the decisions based on an individual’s own personal incentives. Some people are looking for a home in a new city after receiving a job offer, others are hoping for a move closer to family but some are more concerned with increasing their own net worth and making money through real estate investment properties.

These individuals use a variety of methods in an effort to determine where the best real estate moves can be made and how to profit from a particular piece of property. In an effort to continually increase their investment portfolio and grow personal wealth, a variety of issues must be addressed to ensure a favorable market and increase the return on any investment made.

One of the main decisions associated with the purchase of a new or used property and especially when considering going all in on more than one option at a time, is an ability to spread assets while maintaining a proper stake in the investment.

Leveraging is an important option for this and can pay big dividends if executed in a prime market with favorable results. Leverage is the investment strategy for using borrowed money and can also be an amount of debt used to finance assets. Highly leveraged properties have more debt than equity meaning the amount owed is in excess of the perceived value or worth in a project.

When executed correctly, this practice can increase both an individual’s investment potential and overall worth.

Example

A good example of leverage to increase your real estate net worth involves purchasing a home or business for any means but investment opportunity is the key focus here. Two pieces of real estate are available at two very different price points. In this scenario, one is available for $100,000 and the other at $500,000 in a similar location and same real estate market.

The buyer, hoping to make money on their investment has enough money of their own to make the outright purchase of the first property or put a down payment on the second, while borrowing the remaining money from another source.

Both properties then appreciate at the same rate over the course of a year, using 4-percent for this approximation. In one year from purchasing the property, our investor will have $4,000 on property one or $20,000 in property number two.

The key then is by leveraging more money from the beginning, a higher return on the initial investment becomes available. Further, the asset provides a virtual safety net and if this approximation is for one year, imagine the possibilities over an extended period of time.

Accessibility

Use of an individual’s own money is one of the main ways to utilize leverage. By being able to provide a down-payment, often the value of the property being purchased can be increased due to the borrowing levels associated with an investor.

Depending on the cost of the project in question, the leveraged amount will vary but more money can often be borrowed when a sizeable down payment is made onto a piece of real estate. Even so, there are programs and places available today that are willing to offer generous amounts based on outlying factors. These enable people to invest in properties with little to no money down at the onset of ownership.

On a smaller scale, if a $100,000 project is attained with no money down then an owner gets full control of the property with zero out-of-pocket expense. Appreciated at the same rate used in the above example, one year later an investor has increased their net worth by the $4,000 without essentially spending any of their own cash.

Twenty years later, the total rises to $80,000 or almost double the worth with appreciation continuing. These factors allow an individual’s net worth and portfolio to grow and can be multiplied even further with the continued use of leveraging and providing the monetary needs to up the potential earnings from real estate properties in question.

Benefit

The case between paying down debt or buying more property then becomes an issue if involved in real estate solely as an investment opportunity. Money made on a return can be used to pay down a potential mortgage elsewhere in one’s portfolio or used to increase their own size and ownership.

Leveraging allows this to happen and as seen here, shows that real estate debt is the only true debt worthy of increasing. Another common debt, credit cards typically have nothing to show for them and remain a money pit, sucking up funds with no viability. In turn, real estate debt is tied to a more physical asset with the potential for appreciation and monetary value either immediately or within a future availability.

Therefore, by leveraging up and purchasing another property, one’s portfolio grows while increasing their own net worth and earnings potential down the road. Rental properties are a prime example of this aspect and provide a good example of leveraging use by an investor or landlord.

If an investor owns and rents a property, all rent is straight cash flow which can be attributed to other properties if owned outright. This way, renting exceeds the benefits of selling and allows for an individual looking to make money in the real estate market to have multiple properties within their own portfolio without limiting their leveraging capabilities.

Come see the experts at COHI Capital Private Equity Lending who can help you determine your needs and set up a beneficial plan immediately. They will decide what type of loan will work best for you after finding successful funding needs for over a decade. . A full detailed review of your situation can be completed in addition to resolution issues and monetary considerations. Request some additional information by contacting COHI today. Call 970-922-3277 or contact us for a decision. Often these are made the same day and can be addressed depending on client needs and schedule.