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Financing Properties
Debt, Margins, and Leverage
Barriers of entry can be high for investors getting started across any asset category. This remains an important fundamental to understand. But as Alexander Hamilton explains to Aaron Burr in the iconic musical ‘Hamilton,’ “When you get skin in the game, you stay in the game. But you don't get a win unless you play in the game.”
Oftentimes, you have to get creative to make your first play when it comes to investing. What does this mean, and what are the options?
Debt is a common strategy investors use to make money moves. Debt can take different forms depending on the investing category.
For instance, when it comes to investing in stocks and cryptocurrencies, debt is called margin trading, and it involves taking on high risk and should be reserved for experienced investors only.
However, In real estate investing, debt packages, commonly known as mortgages, are a more manageable tool with lower associated risks.
In real estate terminology, debt adopts a more standard format and can be thought of as a loan from a bank, often packaged and called a mortgage. With a mortgage, an individual can invest in a new property with a 30% down payment or less, financing the remainder of the property cost.
Regarding financing options, it is important to understand interest rate frameworks since interest is collected. Interest represents the premium investors are willing to pay to borrow money to break up their total payment sum at the onset.
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