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Typically, you hear the financial terms "leverage" and "OPM" or Other People's Money when discussing big time real estate investing. But regular every day home buyers can also learn from the basic principles of leverage and the art of using other people's money when buying a new home. For an investor, real estate investing in the D.C. market can lead to tidy profits, but even the average homebuyer can take important steps towards financial success and personal wealth building by buying a new home in the DC real estate market.

Imagine how long it would take to buy even a car, yet alone a house if you had to save enough money to make the purchase in cash. Especially when considering a home, saving to the whole amount might take years, so typically people put out a small amount of their own money and borrow the rest.  This is leveraging as you achieve your home owning goal with the help of using other people's money (OPM).  The smaller the down payment you have to pay means you have more liquidity to do other things such as invest or save - more leverage.

If you want to create wealth, you need leverage because leverage equals ease and speed. Leveraging to buy a home means you will want to spend a little to buy a lot. Mastering the art of leverage in real estate, you can build your wealth by putting other people's money to work for you, which you try to do at the lowest cost.  Learning and applying the basic principles of leverage and using OPM can give you power when buying a new home.

We are not talking about buying more home than you can reasonably afford here. Buyers who bit off more than they could chew used funny-money loans with irresponsible lenders.  We're advocating that you work with an excellent Realtor & lender, so you legitimately qualify, maximize your leverage & can safely afford the payments.

Lessons Learned From Real Estate Investors:

Lesson One: You may have heard ads on TV about buying property with no money down.  The people behind these infomercials usually are promoting a system. Lots of times these systems are flawed or borderline illegal but the premise is good: Don't go it alone. Get the advice of and work with an expert such as Rachel Valentino who knows the subject of real estate. She has a background in finance and can help you evaluate your options.  Leverage her knowledge to increase your understanding of how best to leverage your money.

"A single conversation across the table with a wise man is worth a month's worth of books" Chinese Proverb

Lesson Two: A long lever works easier and faster than a short one. This can be translated into buying a new home:

For example, if you put 10% down on a $200,000 home that goes up in value by 5% in one year, then the property is worth $210,000. You get the leverage not only on your $20,000 but also on the remaining $180,000 that you have borrowed. Your $20,000 investment has earned you $10,000, a 50% return on your money.

When you are able to buy real estate for no money down and it goes up in value, you have created a return totally on someone else's money. Of course, some time and effort are involved to find such a deal. However, computing a financial return on no money invested shows an infinite return. This is a case of infinite leverage.

A good case scenario for a new homebuyer would be a "middle of the road" situation. This may be a FHA loan if you qualify. These programs will let you buy a home with as little as 3.5 percent down. Or it could mean a low interest loan from your local bank or credit union. So if you're trying to find a way to become a homeowner with a small down payment, work with a Realtor^® such as Rachel Valentino to take a look at these loans and other available options.

Lesson Three: While a real estate investor looks to build profit from the real estate deal, a home buyer can look to build equity. In many cases, home equity is the most important factor in one's personal net worth. The equity portion of your mortgage payment can be looked at as a form of automatic savings. Building your wealth or equity also gives you stability because you have something to borrow against in times such as an emergency.

Basically, to find the home equity of your home, subtract the remaining mortgage balance from the current value of your home. But although it sounds simple, it is better to consult an expert in the DC real estate market such as Rachel Valentino to help guide you through the process.

Lesson Four: Don't squander your valuable resources. Leverage your own time, energy and money by working with an expert who knows the DC area real estate market and can help you weed through the financing options. Contact Rachel Valentino with any questions you may have about leveraging and using other people's money when buying a new home.

In closing, many people are scared to learn about financial subjects such as leveraging. But each of us has experienced, witnessed, or used leverage in some aspect of your life. So it doesn't have to be scary. Don't try to go it alone and learn it yourself - embrace leverage as a foundational strategy and as your friend in life. Learn more about this subject and how it relates to buying a new home by contacting Rachel, one of DC's top real estate experts at The Atlantic Coast Connection today.