Return on Investment, The Goal of Investment Real Estate Financing
Return on Investment or ROI as it is more commonly known is the measuring rod that all investors should be using when they are entertaining the purchase of a property.
Investment Real Estate Financing is the process as well as the goal when acquiring a piece of property. For without investment financing a developer would have to pay all cash for their purchase
By utilizing investment financing a developer/builder can take advantage of everyone's favorite financial tool....
LEVERAGE IS THE GOAL OF EVERY FINANCIAL INVESTMENT, USING SOMEONE ELSE’S CAPITAL INCREASES YOUR CAPITAL RETURN.
So what exactly is leverage. We've all heard the term but do we understand how leverage will truly increase your return and take a project from a lower ROI to a much higher ROI.
For example if you purchase a ten unit multi-family project for $1,000,000.00 and you put 10% of your own money down and borrow the balance you have a 90% LTV, or loan to value loan.
Lets further assume that the property is increasing in value at 5%per year at the end of year one your property is worth
At the end of year two your property is now worth
For an increase of
Without leverage you would have only been able to purchase a property of $100,000. and in two years you would have only earned an additional $10,250.000
Leverage brought in an additional
Analyzing the above it is clearly apparent that every investor should take advantage of Investment Real Estate Financing for all of their investments.