Your broker has turned you on to an incredible income property deal that will cash flow big time from the beginning because it’s already leased long term. You’re so excited you might pass out. There’s cash in the bank to cover the purchase. Pull the trigger?
Not quite that fast.
Despite antiquated conventional wisdom to the contrary, buying a property with cash is not something a savvy investor would do. The problem with buying on a cash basis is that you short circuit the benefit of a beautiful little concept called leverage. Pay attention. This could make a big difference in your life.
Let’s say you bought a property for cash for $100,000. One year later, the value has gone up to $110,000, so you sell it and bank a $10,000 profit on the deal. That works out to a 10% annual profit. Nice but not outstanding.
Now let’s do it using leverage. In this scenario, you put down $10,000 on the deal and finance the other $90,000 through the bank. When you sell it one later for $110,000, you have bumped up your profit to 100%! You reaped the same $10,000 profit on the sale but only had to use $10,000 of your money to do it. The real beauty is you don’t have to tie all your money up in one property. You could buy 10 properties with a $10,000 down payment on each. What if, one year later, they all went up an average of $10,000? That’s one hundred grand, buddy.
Imagine the possibilities.
The Platinum Team
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