Leveraging means taking what you own, and using it as collateral to make further purchases. In real estate, leveraging is how successful investors are able to quickly and effectively grow massive portfolios.
If you’ve seen our video on the BRRRR Method, you know how powerful this strategy can be! But it rarely just falls into place, it’s something you should strategically plan. You never want to be over leveraged or acquire crushing debt.
In order to leverage well, it’s imperative that you know where you stand. The first thing you should do is assess all of your liabilities. This includes all of your debts. Include the remaining balance on your mortgage and car loans, any credit card debt, a HELOC, etc.
Then determine what your assets are, and how much they are worth. Include your real estate investments, cash accounts, stocks, and 401k. Other assets could be college savings accounts, vehicles you own, and art. Include anything that is cash, or could be sold for cash.
The next step is to subtract your total assets from your total liabilities to calculate your total net worth. In our family, this is something we do often to ensure we are on track to meeting our goals.
Personally, we follow the advice of Natali’s dad, who recommends that you should own up to 30% of your portfolio, and be no more leveraged than 60-70%. To hear more about how we balance assets vs. liabilities, check out episode 106 of Investing in Real Estate!