How to Maximize Passive Income Using Leverage

Updated: Jun 22




In traditional 9–5 jobs, you have to spend much time working to earn your salary. But in passive income, you only need to work for a short time initially, and then you can relax a bit.

People are getting smarter about their money. They know they need to have more than one source of income. That’s why we talk about passive income more than ever before. People used to be happy with just their regular job, but that’s not enough anymore. You need to have different sources of income if you want to be free from money worries.

Passive income is when you get money from investments, work, or labor without doing anything directly.

When we talk about passive income, what do you think of it? Is it an easy income? Money that goes into your bank account without any effort on your part? If that’s how you see passive income, you’re like most people.

However, our definition of passive income is different. The idea that you don’t have to do anything to earn passive income is a dream. Let’s take income through dividends as an example. You can argue that you don’t have to do anything to make it, but you need the capital first to earn dividends.

This means that passive income is not free money. It would be best if you still put in some work to set it up, but after that, you can leave it alone, and it will keep making money. Passive income is different from other types of income because you only have to work on it for a short time initially, and then it virtually runs by itself when you have a good team in place.

If you take some time off from work, you will lose money with your traditional income. But with passive income, you have a system in place that keeps giving you money, whether or not you are participating. An example of this is investing in passive real estate.

Passive real estate investing is when you invest in someone else’s property. That person is called a syndicator. They know what they’re doing, and they’ll manage the property for you. Sometimes, to do more deals, syndicators need outside money. That’s where people like you come in and invest.

It is possible to reduce the amount of work you need to do when investing in real estate. One way to do this is by using syndications. However, it is essential to remember that your first goal should be to protect your money. You can do this by doing proper due diligence before you invest. If everything goes well, you can expect the investment to pay off with cash flow and/or appreciation over the life of the investment cycle.

What Is Leverage?

Leverage is a technique where you use what you have to make more money.

When you’re buying something and don’t have enough money, you can use a lever. This means that you borrow from somebody else to help you out. When you bought your house, for example, you borrowed money from the bank so that you wouldn’t have to pay the total price of the home at once. The bank is providing the leverage by lending you most of the money, and in return, they get to keep your house if you don’t pay it back.

The Different Types of Leverage in Real Estate

Purchasing Power

In real estate, leverage can be in different forms. As described earlier, the first example of leverage is that of leveraging money or capital.

Let’s say you have $100,000. You can choose to use that as a down payment for a $500,000 4-unit property and earn income from that one property. That’s a great idea, right? It may be for some! But going through this route means your possible income is tied to that one 4-unit property. However, you can use the same investment capital of $100,000 to get into a 200-unit property as part of a syndicate. Syndications pool money from different investors to buy more extensive properties together.

Once pooled with other investment pledges, your initial $100,000 will have more purchasing power. That means you leverage your money to go into a more significant, more profitable deal than you could afford alone.

Financial strength

The second type of leverage is financial strength. This is how strong your financial position is regarding the assets you own vs. your liabilities (what you owe to creditors); specifically, this forms a part of your financial statement. A personal financial statement is a snapshot of your financial position at a particular time. A personal financial statement is necessary when you invest in real estate. It is like a financial report card that shows your financial standing.

When you invest in real estate by yourself, your financial strength determines the size of the deal you can purchase alone. In commercial real estate, your net worth must be equal to or greater than the loan amount. Your purchasing power will be limited to smaller properties with less cash flow than syndication. You can pool resources and combine net worth to qualify for larger properties with significantly more cash flow and much higher returns than going it alone.

Knowledge and Experience

Another thing you can leverage by joining syndication is the knowledge and experience of the team.

How long does it take for one to master something? Let’s use physicians as an example. Before they acquire their license and become physicians, they have to go through 10 years of education. Similarly, no one becomes a real estate expert overnight. It takes years and years of experience to become one.

By investing in syndication, you can access the company’s vast amount of knowledge and experience without having to go through all the processes yourself. This situation is perfect for one (1) those who are just getting started because you don’t have to devote much of your precious time learning the ropes because doing so may result in missing out on lots of opportunities. And two (2) those who don’t want to be bothered about the intricacies of real estate investing. After doing your due diligence, you can trust the company and let the team run the investment.

Usually, syndication already has a team of experts who are knowledgeable about spotting the best real estate deals in the market. The experience of the team is another aspect you can leverage. Imagine having access to a group of specialists who can give you sound business advice. This team also has the technical knowledge to consistently make each property deal profitable. The best part is that you don’t have to build this team from scratch!

Time

Building a profitable real estate portfolio entails many moving parts, and it takes a concerted effort and a considerable amount of time to plan, implement, and execute. That is time you may not have or maybe better spent elsewhere (with the ones you love or with self-improvement activities).

When investing in passive real estate projects, you’re leveraging time. You may invest time upfront (during due diligence), but compared to the years of passive income a good investment can bring, that time is well worth it. Instead of doing everything firsthand, trading time for money, you will only spend a small amount of time for significant, long-term benefits, like hanging out with family and friends, traveling, or just enjoying life.

Conclusion

Leverage is a powerful tool. If you learn to use leverage with passive income and real estate investments, you will become a sophisticated and efficient investor. Most importantly, you can achieve your financial goals quickly, thereby spending time on other important things in life.

At the end of the day, our ultimate goal isn’t simply to make a great investment but to make an investment that will allow us to live the life we want and to have the time to spend with the people who are special to us.


••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••


To learn more about apartments and how your money can work harder for you by investing passively in multifamily real estate, Then Book A Call Today, and we will be happy to have an initial conversation. We are looking to build a community of like-minded forward-thinking people interested in leveraging the collective power of syndications to help us co-create financial legacies through apartment investing.

26 views0 comments

Recent Posts

See All