How Do Leverage and Appreciation Boost Phoenix Real Estate Investing Success?
Channel: Service Star Realty
Date: 11/02/2019

The relationship between leverage and appreciation in real estate is very important. Leveraging can affect your returns over time, so it’s important to know and understand what a comfortable leverage is for you to achieve your investment goals.

ROI and Cash Flow on Your Property
You want the ideal loan value on your property, so your returns are maximized. At the same time, you need to make sure you are meeting your cash flow needs. Those are the two sides of the leverage coin. For example, let’s say you purchase a property (https://www.leaseaz.com/blog/is-it-a-good-deal-tips-to-consider-when-buying-investment-property-in-phoenix-az) for $150,000, and you put $40,000 down on it. You are earning a nice five percent cash on cash return, but when your asset appreciates, seven years later your property may be worth $210,000. Your equity and your property are now twice as much, but the cash flow has not changed. Your return was five percent on the $40,000 down, but on the $100,000 equity you now have, the return is only two percent. You may start thinking you can get more mileage out of your money elsewhere.

To learn more, go to: https://www.leaseaz.com/blog/how-do-leverage-and-appreciation-boost-phoenix-real-estate-investing-success

Consider a Few Different Scenarios
You can buy a property outright for $300,000, and have no debt service. You would keep all the cash flow and have only the maintenances and taxes and insurance 
( https://www.leaseaz.com/blog/having-the-proper-insurance-for-property-investors ) as expenses. You have an investment that is $300,000 appreciating at three percent annually or $9,000 per year. You would also have tax depreciation right off the bat and save approximately $3,000 on your tax return. In this example, that’s a three percent return on your investment. 

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