×

Title Here

Content Here

×

Title Here

Content Here

×

Title Here

Content Here

Here’s the secret that every self-made millionaire knows: you cannot build a significant level of wealth by earning and saving. You must learn how to invest, and you must understand how to harness the power of leverage. That way, debt can serve you rather than you serving it. It’s all about who is in the driver’s seat.

Using debt as leverage empowers you to make more money faster, thus expanding your potential to give and invest in a way that makes a difference. Really, leverage is a completely different ball game than consumer debt. 

When you use leverage, you are exercising strategy, intentionality, and foresight to build wealth. When you use consumer debt and don’t pay it back, you are tearing down your ability to build wealth. Real estate is my favorite way to use leverage, and you’ll soon see why!

This blog will specifically cover how to use debt to build wealth in real estate. In addition, you’ll learn about something I call the law of leverage and how it will help you accelerate your real estate portfolio faster than you ever imagined! 

What is Leverage in Real Estate?

Knowing how to use debt to build wealth in real estate hinges on a concept called leverage. In short, leverage is using borrowed money (debt) to undertake a project or investment. It allows you to do more with less!

how to use debt to build wealth in real estate

In real estate, leverage works by allowing you to purchase a larger asset for a smaller amount of money. In the above example, you can see that leverage produces a 100% cash-on-cash return for real estate and a 50% cash-on-cash return for business.

Using leverage responsibly builds your credibility. In real estate investing, banks and potential lenders pay attention to your credit history. If you have shown that you can responsibly handle loans, they are more likely to lend you money at higher levels. I got into a position where I could borrow money for multiple properties from the same place. Over a period of time, using leverage in real estate caused my wealth to grow at an exponential rate.

Real Estate Strategies to Build Wealth

1. Buy and Hold 

Imagine you have $200,000 from a home equity loan or in earnings from the sale of a home. You could use it to buy one investment property for $200,000, paying cash for it. Or, you could exercise the law of leverage! This could involve buying five $200,000 properties, borrowing 80% of the purchase price for each, and putting down $40,000 apiece. Then, you can capture the monthly rental income and appreciation from five properties instead of one.

2. BRRR

Let’s say that you have $10,000 to use for a down payment on an investment property. In as little as six to twelve months later, you can do a cash out refinance on the property and take the original $10,000 back. (A cash-out refinance allows you to take advantage of the equity you’ve built in your home by giving you cash in exchange for a bigger mortgage.)

Next, use the same $10,000 to purchase another investment property. You can rinse and repeat the process to build your real estate portfolio, all with the same initial $10,000 down payment!

3. Fix and Flip (With a Little Buy and Hold)

Flipping houses is another great hack for how to use debt to build wealth in real estate. It can provide a quick cash infusion when you run out of liquid funds. Here’s how it works: 

  • Buy a house for less than it’s worth. Pick one that you can add significant value to through renovations and repairs.
  • Do the renovations and repairs (or hire a team to handle that for you). Always keep your costs top of mind to keep your profit margins healthy.
  • Rent the property for a year. This allows you to avoid paying earned income tax on the property.
  • Sell the property and use the cash you make to put a down payment on more investments!
how to use debt to build wealth in real estate

Do you want to learn more real estate investing strategies? Join us for The WealthBuilders Real Estate Workshop, April 5-7, in Denver, Colorado or via livestream. This is the premier event for Christians who want to start or scale their real estate portfolio. Click here to learn more and register.