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This is something I catch myself doing ALL THE TIME so I thought I’d share - this simple change in perspective can really help to take it to the next level when it comes to growing your money. Enjoy! Add me on Snapchat/Instagram: GPStephan
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So what I catch myself doing is this…I recently deposited a $20,000 check for a deal I did, and I didn’t think to myself “Oh, awesome, another $20,000.” Instead, I thought to myself “Oh, awesome, this means I can buy an extra $100,000 in real estate.” And this is the same with EVERYTHING I do…because I generally put 20% down on a property, this means that for every $1 I have, means I can buy a property worth $5 MORE. So that $100 pair of shoes I could’ve bought is worth $500 extra as a purchase price in real estate. Or the $130,000 I just pulled out as equity from a renovation equals an extra $650,000 in property.
And this can be viewed in EVERYTHING. So you get the idea…basically, if you’re ever going to invest your real estate…you’re $1 is never worth $1. It’s really worth $5 invested in Real Estate. And once you see this, you won’t look at $1 the same way ever again. And when you put things in this perspective, your money suddenly has a lot more significance and impact.
Just as one quick example using dollar amounts to show the important of leverage in Real Estate:
You have a $100,000 Home that makes a 6% net return after all expenses, which works out to $6000 per year
You put $20,000 as a down payment
You finance $80,000 at a 4% interest rate
Within 12 months, you earned:
$6000 Profit from Rent
You paid a total of $4,572 in mortgage payments
You paid down your loan by a total of $1408
Your pet profit was $1428 in rent and $1408 in equity by paying down the loan
This means your $20,000 just made you $1428 in cash, which is a 7.14% return, and 1408 in equity, a 7% return…
Bringing your total “ROI” at a 14.14% return your first year.
Had you bought the property outright in cash, your return would’ve been 6%…so just by leveraging your money, you more than doubled your return for the money you invested. This is the power of using long term, low-interest rate debt when investing. This is also why, in real estate, you should look at every single dollar you have as ACTUALLY being worth $5…because this is how much it’s truly worth. So start looking at your money the same way, it’s really worth 5x more than you think it is.
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