Donald Trump, one of the most famous and even more successful real estate investors/developers of our time once said, “Raising money, whether its derived from investors, family, friends, or borrowed from commercial lenders, is one of the most crucial elements in any real estate transaction.”  I would like to add to that by saying the the utilization of borrowed money can serve many purposes:  First, it creates more leverage, thus enabling you to purchase much more, often 20 or 30 times more than you can have with an all cash investment; it reduces your equity exposure which is essential in declining or troubling times such as the one we are currently in.  Also, and this is one of my favorites, the interest payments on the loan provide a substantial tax deduction.To put this all in the proper perspective, I’de like to ask you a question.  No, this isn’t a trick question!  How many dollars’ worth of stock can you buy with $100,000 cash?  The answer is quite simply, $100,000 worth of stocks.  To be completely fair to both sides I guess you could buy on a margin but thats more complicated than I want to get into here.  If you do already know what “margin” is you probably also know then that you can only leverage a limited number of stocks for a max of about 30 percent of the value.  So, again in almost every stock purchasing scenario, you can only buy what you have.  Now, if you were to take that same $100,000 and invest in into real estate your options really are plentiful.  You could buy a $200,000 property and mortgage the other half.  You could buy a $500,000 property and take out a mortgage for the remaining 80%.  Since your getting the point you have probably come to the realization you can get a $1,000,000 property by taking on a 90% mortgage.  For those conservative non-risk takers out there let me explain something before we move on.  Lets assume your “investment” property whether it be multi-family, commercial, etc. is only realizing a nominal 8 percent interest per annum, that would be $72,000 a year in passive income.  In most cases that would more than cover your mortgage on the 90,000 outstanding principal and interest payments.  Lets not forget that you have an asset worth $1 million dollars!  So, the point is that when you buy “risky” stocks its up to you.  If you want to invest in real estate you have banks and private investors literally taking you out to lunch begging for your business.  Think about it.  I bet you have never seen a sign or advertisement saying they are willing lend money on things such as stocks, paintings, mutual funds, etc. The advantage of leverage should be pretty clear now.  In the above scenario lets assume both investment vehicles each earned 10% in the first year.  Your stocks would have gone to $110,000.  A profit of $10,000.  Your $1,000,000 property would have gone from $1 million to $1.1 million, a profit of $100,000.  That is a 100% return on your investment.  Now, lets say you want to extract your profits or gains. If you chose to put your money in the stock market you would then have to sell $10,000 worth of stock and of course pay Capital Gains on your profits.  This can become very counterproductive very quick.  In the property you could simply refinance, take your cash out and go do it all over again WITHOUT PAYING TAXES. Why?  Because you are borrowing your “equity” from the property.  Since its not considered income you would not be taxed.  Since you didn’t sell your income producing property there will be no talk of capital gains taxes.  This of course can get complicated and thats the reason for the blog.  I hope you all find this to be useful and informative.  If you have any questions please feel free to e-mail me personally at evanjridley@live.com.