It is critical for everyone to look for new ways to diversify their investments. One popular option is real estate investing. Invest in in real estate can provide investors with a unique tool that is not available in traditional stock markets. What this means is that most conventional stocks require someone to pay the full value of the stock at the time the buy order is placed (unless someone is buying on margin, which is very risky). In contrast, investing in real estate does not require someone to pay for the full value of the property at the time of the purchase. This is where leverage comes from.
Buying Property Using a Mortgage
For those who are looking to invest in real estate, the magic number for the down payment is 20 percent; however, there are some locations in which someone might be able to buy property for as little as five percent down. This means that someone is able to control the entire property and any equity held in it for a fraction of its total value. While the size of the mortgage will depend on the value of the property, the owner has total control over it from the minute the mortgage is signed. This is where leverage comes from.
Multiple Mortgages and Down Payments Provide Leverage
It is this leverage that inspires both landlords and flippers. It is possible to take out two or even three mortgages at the same time, giving them the ability to rent out multiple properties to multiple tenants. Then, they take the rent from the tenants and use it to pay the mortgages until the right opportunity comes to sell. Leverage gives flippers and landlords the power to control all of these assets for only a small fraction of its total value.
