When looking for a good real estate investment, a key issue has to be the purchase price. You should never buy real estate for full market value. You should always buy “below market value.” With that important point reiterated, let’s consider what happens when you buy a house with cash instead of buying with a mortgage. I’ll use some artificial figures for the sake of plot and simple illustration. We’ll pretend we have a round figure of £100,000 in cash to invest (not that we have to use our own money to invest in property, but more on that later).

If you buy a £100,000 house for £100,000 cash, you won’t have to pay mortgage interest, so you could earn £10,000 a year in rents. That’s a 10% return on your initial investment. The value of the house could rise (appreciate) by 4% per year, so you have £4,000 extra equity at the end of the first year. OK. Not bad.

What happens if you use a mortgage?

If you have to put down 20% on a £100,000 house, you only need to use £20,000 in cash. You put in £20,000 and buy the house, earning you a profit of, say, £5,000 a year after interest payments and mortgage fees. That’s a 25% annual return on your initial investment of £20,000. This house also appreciates 4% a year, making you £4,000 back.

Here it is where it gets interesting. If you bought that house with a mortgage, you still have another £80,000 in cash to invest. You could buy another 4 such properties, which would increase your annual rental income and equity by 5x! You would now earn £25,000 a year from rental income and also £20,000 in capital per year.

This illustrates why you should buy investment property using other people’s money, especially with mortgages.

Not everyone has a sum of cash in the bank waiting to finance a real estate investment. That shouldn’t stop you.

Instead of putting £20,000 of your own money into that deal, why not use some of your own money? Why not create a “no down payment” deal? You could approach a private investor (there are plenty of them out there, you just have to know where to find them) and ask them to put up the £20,000 and split the profits with you. Everyone is a winner. What if you can’t finance the entire deposit? You can approach another investor, or even multiple investors, to complete the deposit. As long as you have a good business, investors will back you. The money is there. It is not necessary to have it initially. You just need to find the deal. That’s a hard concept for people to understand, but it’s important. You will not get rich through real estate using only your own money. If you do, it will take a long time. We’d rather get rich this year, not 40 years from now!

There are many other easy ways to finance your real estate deals besides the old-fashioned way of saving for a deposit, and all of them can be learned by people like you, if you’re just willing to learn. Educate yourself. Knowledge is power.

The technique of using “other people’s money”, ie a mortgage, to finance your real estate investments, is called leverage. In life, levers are used to allow us to lift heavy objects more easily, to exert greater force at the business end. That is what a mortgage is doing for us. It is allowing us to get more bang for our buck in our business, just as a little weight on one end of a lever can lift a bigger weight. In the example above, we used £20,000 to control a £100,000 house. Sure, you have to make sure you choose the right mortgage product, but that skill can be learned. Learning to read and use numbers is not too difficult for anyone. This is not algebra!

Sure, interest rates go up and down, so your interest payments can go up and down, too, but you can learn to factor these risks into your plans. Risks are a part of life and if they are managed correctly, you will be fine. After all, how often do you get run over at the zebra crossing? You don’t get run over because you know the risks and you know how to minimize them. This is how a good real estate investor works. Investors are not gamblers and never gamble with their money. They assess and manage risks, protecting their investments in advance, confident of a good return knowing that they are protected against loss.

That investor can be you if you simply believe you can succeed and take action to achieve it. Invest in yourself by spending a little time educating yourself on real estate investing. Richard Branson was not an A grade student. He dropped out of school at 16. Bill Gates did not graduate from college. You don’t have to be an academic to earn a million pounds.

With that being said, you will need to know how to make money in real estate. You will need to take the time to learn a few simple rules. You can attend courses and seminars in person or you can soak up the information at home. It’s your choice, and there’s a lot of free information available if you take the trouble to look it up.

Don’t worry about the risk of not making it. How do you know unless you try? What happens to the rewards if you succeed? The person who definitely won’t get rich and escape the rat race is the person who doesn’t believe she can. He is the person who will not take any action even to start the road to wealth.

The biggest obstacle is not the lack of time or money, it is your attitude. If you’re reading this, you’re already over that hurdle, or almost there. don’t give up. There are so many people out there to help you.

The old proverb says: “When the student is ready, the teacher appears.” There are successful real estate investors who want to show you how to follow in his footsteps to become rich and successful. By making you successful, they build a new relationship with someone who could make future deals with them, mutually beneficial to both. You just have to accept their help. There are plenty of offers for everyone, so no one will be hurt by your success.

So, take the trouble to check out the free real estate investment education that is available to you on the internet. An investment in yourself is the first step on the road to wealth.