There is a 300K house. Suppose you get a LTV of 95%. If you put down 15000. The property goes up by 15000 (5% of the property’s full value) the first year, you’ve doubled your money. It’s called cash-on-cash investing.

Think of it this way: Your original loan amount is 285000 on a 300000 investment. You put 15000 down. The property went up to 315000. Just subtract the amount you owe on the loan (285000) from the value you get 30000. That’s twice the cash you put in. On paper, at least, your investment doubled.

Okay you may be saying you just proved that real estate can be as good as stock market. You can double your money in both.

Actually you’ve done much more. Remember, in order to double money in stocks, the stock has to double in price. Even buying on margin, it has to go up by 50% in value.

In our real estate example, the property only has to go up 5 percent in value (assume you only put 5% down) to double your money.

Now, you must know why Donald Trump loves it. and I love it too

Further,

in real estate that chances are that property may continue to go up over the long term. If you hold for 10 years and longer, the average annual rate of return is 7% for DC area. That means that the original money you invested continues to multiply as long as you own the property.

After 10 years, your original 15000 investment is now worth 188617 on paper. By comparison, if you had stuck the same $15000 in the bank to collect interest at 5 percent. It would be worth only $24433. In our example, remember, you are in effect getting the benefit of 5 percent compounded on a $300000 property, even though you’ve only invested $15000.

That’s the power of leveraging.

In addition, during those years of ownership, you or your tenants are also paying down the mortgage. At the end of 10 years your equity buildup as a result of mortgage payback is $46455. Add that roughly $46000 of 10-year payback to the $188617 from the compound growth, and suddenly your profit on paper is $235072. All of that came from a small $15000 investment!

Did I convince you!?!