Real Estate Leverage is simply the used of borrowed money used in purchasing real estate. Equity is the amount of money that the real estate is worth above the amount of money owed. For example, let’s say that you have $100,000 available to invest in real estate and the average price of a home in your area is also $100,000 and the average rent for that home is $1,000 per month just to keep the numbers simple.You could purchase one home for $100,000 cash and then rent it out for $1,000. This would give you a return on investment of 1 percent per month 1,000 / 100,000 = .01) or 12 percent a year. The average real estate appreciation since 1968 has been 6.34 percent per year. Some years it is less and some years it is more, but for this demonstration we will use 6 percent to keep it simple. Add 12 percent and 6 percent and you will have an 18 percent Return On Investment (ROI) for your $100,000. Not a bad return and much better than you would get at a bank or deposited in a CD.Now let’s add leverage into the equation. If you purchase the same home with only 10 percent down ($10,000) with an interest rate of 6 percent then your Return on Investment would look like this. $1,000 rental income minus $450 interest divided by $10,000 down payment for a return on investment of 4.5 percent per month or 54 percent per year plus 6 percent in appreciation is equal to 60 percent ROI per year. Remember you only used $10,000 of your own money and you leveraged $90,000 and your profit per year would be $6,000.Since you still have $90,000 in case available you could purchase 9 more homes. Then you would still have a Return On Investment of 60 percent but your profit per year would be $60,000 instead on $6,000 and you would also have leveraged $900,000.I have not discussed taxes, maintenance, insurance or any other expenses associated with owning real estate. The expenses would be proportional for each home that you owned whether it is one home or ten homes.The amount of money that you get from your real estate investments is always offset by the amount of debt you have; rent checks from tenants need to go toward mortgage payments and other debt. With real estate leverage it’s important to make sure that the income generated from real estate is enough to cover the negative cash flow of the real estate debts during the bad times. Renters can and will damage properties, vacancies will happen from time to time.If you finance with a variable interest rate mortgage or if the tax appraiser raises the value of several of your homes, you could be in a negative cash flow within just a couple of months with no way out.Investing in real estate without significant cash reserves is, shall we say, not recommended. An investor without reserves might as well send an engraved invitation for disaster. Investing in real estate is a daunting task. There are hundreds of elements which must come together in harmony for a transaction to close.Using real estate leverage is a great way to increase your own personal wealth and to build a large and healthy portfolio if it is done wisely. The more real estate leverage you have the more property you can acquire by using this debt or leverage.It’s not difficult to understand the concept of real estate leverage and if used properly can not only make for sound investments but can also make for a healthy financial portfolio.
A latest study conducted by the Asian Real Estate Association (AREA) shows that investors are keeping on hold short-term allocation of money in non-listed properties investment funds in Asia but are committing more money for longer terms. Another survey Investment Intentions Asia reveals that nearly 50% of the investors plan to enhance allocations to non-listed properties investment funds in Asia for medium-term periods of 3 to 5 years, compared to about 24% who intend to invest for short-term periods of 1 to 2 years. This is due to the expectation of fund managers and individual investors that the even the Asian economies that are not doing well right now would recover strongly in 2010, while the marginal decrease in the growth rate of countries like China and India would be reversed to higher growth again.Strong Recovery of Asian Properties MarketsThe housing market bubble bursting in the middle of 2008 in the United States initially affected the Asian properties markets also. However, latest data suggest that these markets recovered much faster than other regions. The first quarter of 2009 witnessed lowest investment levels in Asian real estate markets. However, the investments started improving thereafter in a gradual manner. The main reasons for such a strong recovery was the continuation of the low real estate investment financing costs, a stabilizing price trend across the major segments of the Asian real estate markets, and a recovery in the Asian equity markets.Higher Investment in Asian Real EstateA report from Asia Investment Market View provides data that the direct investment in Asian properties market surged 56% in the second half of 2009 from the same period in 2008. The total investments in Asian property markets had been estimated at $25 billion. The real estate markets of China, Taiwan, and Hong Kong led the recovery, accounting for about 57% of the total volume of investment in Asia during the above period. In Greater China alone, the volume of transactions was $15 billion, a jump of 169% from the second half of 2008. The real estate markets of Japan, Singapore, and Korea accounted for an increase of 17%, 9%, and 8% of the total investment in Asia. Office properties continued to enjoy the preference of investors with more than $10 billion invested in the second half of 2009. This was about 41% of the total investment volume. Residential properties attracted around 20% of the total volume, while 16% went to the investments in retail sector. Industrial property investments also witnessed a growth of 155% in the second half of 2009, compared to the first half, for a total investment volume of $1.8 billion.Future Prospects in Asian Properties Market InvestmentsMajority of global fund managers expect the Asian governments to adjust their monetary policy measures to tighten the lending to property investments to avoid the creation of new bubble asset situations. It is perceived that the prices and volumes of investment across most of the sectors are on the increase, particularly in the office and residential markets. Still, majority of residential markets are in the early stages of recovery. The fiscal tightening measures by the Asian governments are anticipated to cool the possible overheating in the Asian real estate markets across various sectors due to the higher demand and greater investment inflows into the Asian markets from other regions.An example of Asian real estate market growthRecent reports show that the tallest residential tower in the world would be built in Mumbai, India. The Lodha Group would be constructing a 117-storey apartment skyscraper on an old cotton mill site of 17 acres in Mumbai in a central area of the city. The building is expected to be 442 meters high. The tallest residential building at present is in Australia and its height is 323 meters. The new building would have 276 luxury apartments. The Lodha Group had appointed Pei Cobb Freed and Partners of New York as the architects for this new towering building. The construction is expected to be completed in 2014. The Group is also expected to undertake another similar project in a nearby area in the same city.Reasons for Asian real estate investments overshadowing othersThe strong economic growth in most of the Asian economies such as China and India combined with the prices of real estate properties in sluggish economies like Japan and Korea hitting rock bottom are the major drivers of growth in Asian properties investments. The prospects of acquiring properties in developing areas and regions at lower rates that would appreciate significantly in the next few years are sending strong signals to international investors that the future properties investment growth are in Asian markets. The fund managers are anticipated to divert significant portions of their funds portfolio to Asian properties markets, compared to investments in Europe, the Americas, and Africa. Even the Australian and New Zealand markets are expected to grow substantially in the next few years.ConclusionFrom the above data and estimations, it is clear that investors and fund managers are most optimistic about prospects in Asian properties markets overshadowing other markets. Their intention of taking long-term investment decisions in various sectors of Asian real estate markets shows that these markets are going to be prime investment destinations. Are you ready to reap the benefits from the emerging growth scenario of Asian real estate markets? It is time you took an early decision before it is too late and prices appreciate considerably, resulting in lower returns on investments. Maximize your investment returns by entering the lucrative Asian real estate markets and investing judiciously, by conducting due diligence on the most lucrative investment avenues.