Advantages and Risks of Leverage

[Kent Kettell]

What are the risks of using leverage in real estate investing? Are there any advantages to it as a borrower/lender?

[Jeff Roth]

Hi Kent-

Great Question!

You asked about the risks and benefits of using leverage in real estate investing.

The reality is leverage cannot be avoided, usually, in real estate investing.

The risks are you get over-leveraged and your don't have enough cashflow and reserves to weather a market shift, extended vacancy, or major repair.

The advantage is you increase your ROI by using other people's money and as little of your own money as possible. Better yet is to buy well so you can pull as much of your own money out as soon as possible to replenish your reserves and have dry powder to put to work for the next deal. Also, as Jason Hartman says, inflation helps you pay off fixed rate debt as you pay it back with "worth-less"dollars over time--basically benefiting from a non-inflation adjusted, original purchase price in the distant past.

To Your Success!