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Real Estate Oxygen

Veteran international investor John Corey comments

The oxygen of real estate investing is finance. Master the financing and you can become wealthy. You do not need skills or knowledge related to materials, construction and other similar fields. Even the landlord-tenant relationship matters little if you cannot sort the finance. You can outsource all the non-essentials, but finance is vital.

With an ownership stake in the property, control and profits become possible. Management and capital expenditure are under your control. You earn a share of the profits, and what you gain can be substantially more than you have invested in establishing your stake. With the right deal, you can receive the benefits of ownership without legally needing to purchase the real estate.

When people talk about finance, they often think of debt finance - borrowing money to finance investments at a contract rate. Debt finance deals make sense in many cases, and a loan is a tool that allows you to gain control of assets worth more than you can afford to secure with your savings.

The problem is that people who are good at finding and securing good deals will run out of cash before they run out of debt. Lenders do not provide 100% of the funds needed to make a deal stack up. An intelligent lender wants to know that they are not first in line if there are repayment issues down the line. Call it hurt money; call it skin in the game or any other label you like. Lenders will not take the first loss. If a lender is happy at 70% LTV, they clearly state you need to sort the 30% still required. Rarely are lenders glad to see you borrow all of the remaining 30%.

You must learn how to raise equity from other means or other sources if you are going to grow faster than your ability to increase your savings. For some, that means short term projects to earn lump sums and flip a few deals so you can build a cash pile.

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