Assuming you would reap the same rewards either way, would you prefer to invest your own money or someone else’s? We sincerely hope that you chose the latter option. The high profit investment strategy behind this seemingly ludicrous idea goes to the heart of why real estate in general, and mobile home parks in particular, offer the possibility of a much higher rate of return than every cable show business host’s favorite – the stock market.
We’re talking about leverage. We turn to InvestorWords.com to find that, in financial terms, leverage is defined as, “The degree to which an investor utilizes borrowed money.” That’s a simple, clear definition of the term that allows us to add further meaning as we go along. The first clear difference between stock and the high profit investment potential of real estate is that, unless your name is Bill Gates or Warren Buffett, the odds of a bank loaning you money to buy stock are slim to none. It simply doesn’t make good business sense, from their point of view. For stock purchases, the vast majority of investors deposit hard-earned money into their brokerage account and proceed to buy and sell. The point to remember is that the entire purchasing power of the investment account is funded with money earned by the investor one dollar at a time. Yes, we’re aware of the concept of margin and equally aware how quickly it can decimate an unwary trading account.
Alternatively, banks are in the business of loaning money to purchase a real estate investment, and the cost of entry, while not as low as it used to be, still allows for a large bit of leverage. When you consider that an income property can be purchased with only a 25% down payment, you begin to see the possibilities. Your bank or lender puts up the remaining 75% of the property’s purchase price, an amount that you as the investor will NEVER pay a single penny on, yet you retain full ownership rights to the asset at the end of the mortgage period. How on earth can that work? It comes down to the simple fact that you can (and should) rent out your real estate asset. If you’ve latched onto a shrewd deal, the resulting monthly cash flow should cover the mortgage payment, maintenance expenses and, even after factoring in a small percentage of vacancy, leave you with extra money in your pocket. That’s what we call a high profit investment play.
That is what we mean by leverage. If you think you can rent out your stock certificates, we’d like to see you try. Please stay in touch and tell us how it goes.
The MHP Listings Team
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