When you are looking for a good property investment deal, a key issue has to be the purchase price. You must never buy real estate for the full market value. You must always buy 'Below Market Value'. With that important point reiterated, let's consider what happens when you buy a house for cash versus buying with a mortgage. I'll use some artificial figures for the sake of argument and simple illustration. We'll pretend that we have a round figure of 100,000 cash to invest (not that we have to use our own money to invest in property, but we'll come to that later).
If you buy a 100,000 house for 100,000 cash, you'll have no mortgage interest to pay so you might make 10,000 profit per year from rents. That's a 10% return on your initial investment. The house might increase in value (appreciate) by 4% a year so that you have an extra 4,000 equity by the end of year one. OK. That's not bad.
What if you use a mortgage?
If you have to put a 20% deposit down on a 100,000 house, you only need to use 20,000 cash. You stump up 20,000 and buy the house, generating you a profit of, let's say 5000 per year after mortgage interest payments and expenses. That's a 25% annual return on your 20,000 initial investment. This house also appreciates by 4% a year so you again make 4,000 equity.
Here's where it gets interesting. If you've bought that house using a mortgage, you've still got another 80,000 cash to invest. You could buy another 4 such properties, which would multiply your annual rental income and equity 5-fold! You'd now make 25,000 a year from rental income and also 20,000 in equity per year.
This illustrates why you should buy investment properties using other people's money, especially with mortgages.
Not everyone has a cash sum sat in the bank waiting to fund a property investment. That shouldn't stop you.
Instead of putting 20,000 of your own money into that deal, why not use none of your own money? Why not create a 'no money down' deal? You could approach a private investor (there are many of them out there, you just need to learn where to meet them) and ask him to put up the 20,000 and split the profits with you. 1000 Everyone's a winner. What if he can't fund the whole deposit? You could approach another investor, or even a number of investors, to make up the deposit. As long as you have got a good deal, the investors will back you. The money is out there. You don't need to have it initially. You just need to find the deal. That's a difficult concept for people to understand but it is an important one. You won't grow rich through real estate by only using your own money. If you do, it will take you a very long time. We'd rather become rich this year, not in 40 years time!
There are many other simple ways to finance your property deals besides the old fashioned way of saving up for a deposit and all of them can be learned by people like you, if you are only willing to learn. Educate yourself. Knowledge is power.
The technique of using 'other people's money' i.e. a mortgage, to fund your property investments, is termed leverage. In life, levers are used to enable us to lift heavy objects with greater ease, to exert greater force at the business end. That's what a mortgage is doing for us. It's enabling us to get more 'bang for our buck' in our business, just as how a little weight at one end of a lever can lift a greater weight. In the earlier example, we used 20,000 to control a 100,000 house. Sure, you need to make sure that you choose the right mortgage product, but that skill can be learned. Learning how to read and use the numbers isn't too difficult for anyone. This isn't algebra!
Sure, interest rates go up and down so your interest payments can go up and down too but you can learn to factor these risks in to your plans. Risks are a part of life and if managed correctly, you'll be fine. After all, how often do you get run over on the zebra crossing? You don't get run over because you are familiar with the risks and know how to minimise them. That's how a good property investor works. Investors are not gamblers and they don't ever gamble with their money. They assess and manage the risks, protecting their investments in advance, confident of a good return knowing they are protected against losses. And, then, finding a bad credit refinance
can be really hard.
That investor can be you if you just believe that you can be successful and take action to do so. Invest in yourself by spending a little time educating yourself in property investment. Richard Branson wasn't an A grade student. He left school at 16. Bill Gates wasn't a university graduate. You do not need to be an academic to make a million pounds.
With that said, you will need to know how to make money in real estate. You will need to take the time to learn some simple rules. You could attend courses and seminars in person or you can soak up the information at home. It's your choice and there is a lot of free information out there if you only take the trouble to seek it out.
Don't worry about the risk that you might not make it. How do you know unless you try? What about the rewards if you do make it? The person who definitely won't become rich and escape the rat race is the person who doesn't believe that he can. It's the person who will not take any action to even start on the road to riches.
The single biggest obstacle is not lack of time or money, it's your attitude. If you're reading this you're either over that hurdle already or are almost there. Don't give up. There are so many people out there to help you.
The old proverb states, 'When the student is ready, the teacher appears'. There are successful property investors out there who want to show you how to follow in their footsteps to become rich and successful. By making you successful, they build a new relationship with someone who might do future deals with them, so mutually benefiting them both. You just have to accept their help. There are plenty of deals for everyone, so no one is disadvantaged by your success.
So please take the trouble to look at the free property investment education that is available to you on the internet. An investment in yourse 1000 lf is the first step on the road to riches.