Climbing the Property Ladder

Real estate offers massive opportunities for growing wealth. Real estate is a "real asset" that appreciates in value and will always be in demand. The value in real estate and its long term store, and gain, in value, along with its importance in our society and economy, creates a unique situation in the world of finance. Real estate is very expensive in relative terms and for the most part would be beyond the reach of most individuals. But given that ownership of real estate is an important value in our society, and the limited risks, compared to other assets and investments, financial institutions are willing to lend very large sums of money at reasonable interest rates, and spread over very long time frames to those of us who would simply never be able to afford it without such loans.

Mortgages allow individuals to take control of real estate with only a portion of the money needed and at monthly payment level that are affordable. This is the leverage provided by a mortgage loan.

Climb the Property Ladder one Step at a Time

Used properly this leverage can allow real estate investors to quickly build wealth. An investment technique, called the property ladder, allows investors to climb higher and higher up the path to wealth through real estate. Essentially, you buy a property, place a portion of the money as a down payment and borrow the rest. The down payment is your equity and, with each mortgage payment, you add a little bit more equity into the property. This equity also grows as the value of the property increases. This property can then be sold, the remainder of the mortgage paid off, and you are left with more equity than you started with. This larger sum of equity can then be used as a down payment towards a more expensive piece of real estate. Rinse and repeat.

Over time you gain control of more expensive properties. The leverage will multiply itself as you go higher up the ladder. This comes from the percentage growth in value of the properties. A 10% rise in value in a $200,000 property would gain $20,000, while a 10% rise in a $500,000 property would gain $50,000. As the equity grows you can control more expensive real estate which allows your equity to grow faster.

Climb Multiple Ladders

Another method of climbing the ladder is to climb multiple ladders at once. The equity in one property can be used to purchase another without selling the property that is being borrowed against. Owning multiple properties means those other properties can become income sources through rental. As the equity grows in those properties more properties can be purchased to grow more equity and receive more rental income.

This is the path to wealth through real estate. Now, go on, get climbing.

Real Estate Directory > Real Estate Investment

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