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Leverage and Knowledge for Huge Real Estate Profits
| | Thursday, September 18, 2003 @ 08:00 AM EDT
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Contributed by: Jon Petreeko
Jon Petreeko Properties
Read more archived articles about Squeezing More Profit
In this section we're going to show you how someone with very little money can take
advantage of the # 1 Real Estate Wealth Builder--- Leverage!
I'm going to give you an example of how leverage can help you achieve your goals in the quickest way possible. You're going to need some experience before attempting this specific technique for building wealth. Don't worry though... with the right "educational path" you can get to this level rather quickly! Here's a great example and explanation:
You have about $2,000 to invest. It's not a large amount of money but with leverage you
could still acquire an "asset" in a
highly appreciating market place... with the right knowledge!
Let's say you find a duplex that will give you about $375 per month in cash flow. You find this out after performing the necessary "due diligence" (we'll go over this in tons of detail in my book*). You realize that this investment will require about $8,000 out of pocket. You need someone else to provide the additional $6,000 you don't have. What can you do? Create a deal that's a win-win for everyone!
Find someone who wants to invest their money. They can be friends, family or even
business associates. Show them a favorable rate of return on their money and a percentage equity ownership in an appreciating asset! Here's what you can give them:
- 10% equity ownership and $75 per month cash flow
They will receive a 16% rate of return on their money through the cash flow estimated on an
annual basis. They will also hold 10% ownership in the property so you can show them how much they will gain over the course of 5, 10, & 20 years through appreciation. This sounds like a really good investment to the average person. Most people are "thrilled" to get more than 8% interest on their investments.
They didn't have to go through the whole hassle of finding, funding & closing the deal! You did! All the work you're doing requires effort and your valuable time! Time is money and you should be compensated.
Let's go over how you created an enormous "cash on cash" return on investment:
- You're original $2,000 is generating $300 per month in cash flow!
- You own 80% of an appreciating asset!
- This results in a 125% "cash on cash" return on investment for you!
Why settle for 16% when you can make 5 to 10 times more than that... with the right
knowledge. I know what you're thinking. What are you talking about here? Get specific! Let's "throw around" some questions and concerns I'm sure you've started to think about already:
- What is a favorable rate of return?
- How do I protect myself in case of unexpected expenses and vacancy?
- Where are these type of properties located?
- Is this legal?
- What type of knowledge is required to complete this type of a transaction?
We will get to all of this but it's going to take "more than this newsletter" to describe
everything in complete detail. I will be going over this in my book real estate investing SMART FROM THE START so make sure to look out for it at the end of Sept.!
Jon Petreeko
REIsmart, LLC
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