Leverage, the key to land investing

Leverage in investing is much the same as it is in high school physics. The use of a small force to move (or control) a greater force. In the same fashion, in land investing, one can move (control) a much larger investment with a small down payment. Professionals do this all the time, and the greater the leverage, the greater the profit ratios will be. Leverage is the secret of success in land investing. No other method of investment offers the average salaried man so great an opportunity to "own" so much for so little cash. In no other way can he start out investing with so little of his own money and have so much of someone else's working for him. Why has Real Estate produced more millionaires than any other investment field? The following reveals the secret. Real estate, as an investment, has one characteristic that is not possessed by any other type - namely, high leverage. Because of leverage, with the same degree of success, a real estate investment program will give much greater capital accumulation. Each dollar invested in the stock market has only one dollar working - buying on margin increases the ratio somewhat. Each dollar invested in real estate will have two to ten dollars working. This is because the mortgage is usually much greater than the cash investment. The ratio of the mortgage to the purchase price determines the degree of leverage. Thus, success becomes multiplied several times. If the Amount of the purchase were $10,000, the investor would have to put up $8000 cash for the securities as compared to $2000 - cash for the land. If, after a period of time, the investment doubled in value, the securities investor will have made 125 percent on his down- payment, or initial investment. The land investor has made 500 percent. I am aware that the market can go down as well as up but I will discuss market performance in a later increment. Using leverage, one basically buys on credit. Thus the use of leverage also implies the ability and requirement to carry periodic payments, usually monthly, including both principal and interest due on the un-paid balance. Without the ability to make the monthly pavement, leverage is of no use. To recap, the advantages of leverage include the requirement for only a small down payment to obtain control of a much larger equity, and the maximum use of someone else's money rather than one's own. It is the utilization of available cash to obtain the most for one's money, always an objective of sound financial management. This brings me back to my opening statement that the answers to the matters of creating wealth and combating inflation are the same. The solution to both is to make more money. The exact method one uses is a matter of choice. On another occasion, I wrote that I thought it prudent to diversify one's investments. This is still my opinion. Each type of investment has its own advantages and disadvantages, and these must be balanced out. Carefully selected land is exceptional for its profit potential and this profit can be maximized through prudent use of leverage. Over a period of years, land has proven consistently, to be a good investment for producing large equity increases.