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    Leverage - Real Estate Leverage 
 
 
  Real Estate leverage is the use of borrowed money to increase your profits in an investment.  Building wealth via real estate requires the use of leverage.  Let's assume you have $100,000 to invest and you purchase a small income property for $100,000.  Let's assume that income properties have been appreciating at an average of 7% per year.  At the end of the first year of operation,  your property is worth $107,000.  At the end of year two, it  is worth $114,490.  Now let's assume that you put your $100,000 down on a $500,000 income property.  At the end of the first year, it is worth $535,000.  At the end of the second year, it is worth $572,450.  By using leverage or borrowed money to purchase a larger income property, you have increased your profit by $57,960 in just two years.  To get the full advantage of leverage, put the minimum down on a good property which has a strong likelihood of appreciating in value.  Stay away from questionable properties in run down areas.

When you purchase a piece of real estate, you make use of leverage when you borrow money towards the purchase price.  The principal of leverage can be demonstrated very easily with an investment model.  For those of you who own "ON TARGET", bring up Sample 1.  Run the model with the current data and go to the reports section.  Take a good look at the MIRR (Modified Internal Rate of Return) values on the Future Wealth report or print a copy of the report.  Go back to the input section by clicking on input.  Change Loan 1 Amount on the Property Data screen from $300,000 to $350,000.  This will reduce your down payment from $92,073 to $42,323.  Click on run and go back into the Future Wealth report.  Your Before-Tax and After-Tax MIRR values have increased substantially for all years.  The model clearly demonstrates the principal of leverage.

The On Target 3.01 real estate investment analysis software can demonstrate  the use of leverage in just seconds.  The sensitivity analysis report allows you to watch both your cash on cash return and modified internal rate of return values increase as you reduce your initial investment amount.  The On Target software is only $97.95 and provides powerful and user friendly analysis to help you increase your income property investment returns. To purchase On Target, click on   Purchase Software   The On Target real estate investment software includes a 30 day money back guarantee and free support.

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