FINANCIAL LEVERAGE
With a relatively small amount of cash you can
control a considerably more expensive investment. Federal rules currently require a
minimum of 50% payment to buy stock, but you can usually buy raw land with only 1% to 15%
down. That gives you "Financial Leverage", and in simple terms here is what it
means to you in dollars and cents:
Say you made a cash purchase of land for $10,000.00
and you sold it for $20,000.00. Your profit of $10,000.00 on a $10,000.00 cash investment
is nothing to sneeze at. What you have done is doubled your money by investing $10,000.00
to make $10,000.00 cash. On the other hand, if you bought the same land with a down
payment of $200.00 and paid $50.00 a month towards the purchase price, at the end of the
year the $200.00 you put down plus 12 months of $50.00 equals a total investment of
$800.00 instead of $10,000.00, if you would have paid cash for the land. If you then sold
the land at the end of the year for $20,000.00 you would have made the same $10,000.00 but
instead of your profit being double your investment you have made - not just 100% on your
investment but 1250% or 12 times your cash investment or ($10,000.00 for an $800.00 CASH
investment).
That is what is meant by "Financial Leverage", you control a large amount of land with a very small investment.
