4 Ways to Use Leverage To Enhance Your Real Estate Strategy

The ability to leverage is one of the greatest benefits of real estate investment.

The way most people think about leverage in real estate is borrowing other people's capital to finance the purchase of a property. However, there are other ways you can use leverage to enhance your real estate strategy and investment options. In this article, I share 4 ways you can use leverage that will enable you to go further and faster in your real estate investing.

1. You can leverage with money. 

You can leverage with money by getting a lender to finance you and/or having investors invest with you. You leverage Other People's Money ("OPM") to buy a property.

An example of how we leveraged money was when we invested in a 77-unit apartment building in Albuquerque, New Mexico. We got a loan from a bank for 80% of the value of the building. We also partnered with other investors to pay 20% of the down payment plus the rehab (the money we would need to upgrade the property). We invested our time and leveraged other people’s money to buy this property.

2. You can leverage with time.

If you passively invest in projects, you can leverage other people’s time. The active investor will find the deal and manage it, while the passive investor provides the funding. You can invest in real estate while using OPT. If you’re part of a syndication, you’re also able to take advantage of OPM because you’re piggy-backing off of all the other investors to get into the deal. You are also leveraging time when you have property managers doing the work for you, and all you need to do is collect the profits each month. All of these time-leveraging strategies give you more time while still putting your money to work in real estate.

3. You can leverage with other people's experience.

If you’re new and don’t have the experience, you can leverage the experience of others.

When we were just starting we were able to leverage the experience of others to help us get in the door and get our properties.

Our next-door neighbor Lydia is a bad-ass real estate investor goddess. She is the vice president of an investment fund and has personally worked on over $1.5 billion worth of syndications.

She had done most of her syndications under the aegis of her employer and wanted to work on her own deals. She was incredibly busy with her job though.

We had more time available, but not her experience. We were able to do a lot of the leg work and she was able to (much more quickly than us) evaluate and underwrite deals.

We partnered with her and her husband to find deals. With her vast experience on our team resume, it was very easy to open doors and get brokers/lenders to take us seriously. We leveraged her experience to dramatically expand the breadth of our own knowledge while making money in real estate in the process.

4. You can leverage with the property itself.

The more units you have the more leverage you have within the property itself.

If you have a single-family rental, if you lose a tenant, your place is 100% empty and you are losing money. You have zero income yet still have to pay the mortgage, insurance, and property taxes.

If you have two units and you lose a tenant, you’re still making 50% of your income. If you have 10 units, and you lose a tenant, you still have 90% of your income. If you have 100 units, and you lose one tenant you’ll still have 99% of your income. You get the point.

Leverage also works in the positive. If you leverage a bigger property, small changes make a huge difference.

If you have a single-family home and can raise the rent by $50 per month, you can make an extra $600 per year. If you have a 100-unit apartment building you raise rents $50/month that's $5k/month or $60k/year income. Furthermore, because the value of a 5+ unit is based on net operating income, these increases will significantly increase the value of the property.

Lastly, when you have a larger place you have economies of scale that make it more cost-effective to pay for professional property management. This means that you can have more tenants, but do less work (no fixing toilets for you!).

About Monick Halm

Monick Halm, founder of Real Estate Investor Goddesses, is an educator and advocate for female real estate investors, Her mission is to help 1 million women achieve financial freedom through real estate investing. To find out more about Monick and connect with her, go to www.reigoddesses.com.