Your Smoky Mountain Investment Cabin: Leveraged Investments
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Usually, a cabin investment is a leveraged investment. What is a leveraged investment? A leveraged investment is an investment on which your returns are determined by the total value of the investment but on which you have paid only a portion of the total value. If you were to purchase a $300,000 cabin, you would typically make a 5% to 20% down payment or $15,000 to $60,000. Yet your appreciation is based upon the total value of $300,000. If your $300,000 cabin appreciates 5% in a year, that would be an increase in value of $15,000. If you had paid cash for the cabin ($300,000) you would have shown a 5% return on your investment. However, if you had made a 10% down payment ($30,000) the $15,000 in appreciation would be a 50% return on investment. That is an EXTREMELY simplified example but it makes the point. With a leveraged real estate investment every investment dollar you spend works harder for you than paper investments that generally require paying the full value of the investment to participate.
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