Financial leverage - in the context of real estate investing - is viewed as borrowing (or sometimes called “gearing”) against already existing assets. This means utilizing an already existing set of financial resources in order to magnify the potential results produced. As a beginner investor, the first logical step in this process is assessing what you already have, that can be used to increase your buying power.

Some common places to look when getting started are:

And any other sources of stagnant money – that is money that is tied up, or sitting in a structure, possibly earning some sort of return already. These are funds you will either borrow against or use directly, depending on your scenario.

This step is logically the first of many to asses how much and/or how many properties you can acquire initially. It should be done with the assistance of someone who has access to, and knowledge of, investor-friendly mortgage products. This way he/she can make some recommendations to you, based on your own scenario.

The leverage, then taking the form of one or more loans, is then used to invest in real estate. The goal being that the return from the investment, provide greater financial reward than the cost of the interest paid. And, one of the reasons real estate investing is so popular, is that there is already a structure to insure that this is the case. That structure - is that all the interest paid is tax deductible. So in essence – even before there is any appreciation, cash flow, or depreciation benefits – the investment is already balanced out by the tax benefits.

That being the case, the greatest risk then, is that the real estate would lose all of its value. Then, and only then, the ROA (return on asset) would be severely negative. But when the investment makes financial gains greater than the interest of the loan, then the ROA is considered to be positive. With real estate investing specifically, there is the greatest chance of positive ROA because of the number of ways the gain is realized with:

As well as other tax-time monetary benefits!

Real estate investing is therefore, is a logical and wise investment strategy long term, no matter what your future goal is, and no matter where you are starting.

Author: Investment Property Specialist Alex Anderson helps people to purchase, rent-out, and manage their own wealth-building Minnesota Investment Properties.