By Chris Tinsley

Disclosure: Some of the links in this post are affiliate links and if you go through them to make a purchase, I will earn a commission.

While everyone borrows money, most people don’t know how to invest that money and make a profit.  This concept is called, financial leverage.  Financial Leverage is simply investing borrowed money and making a profit after you pay back the owed interest. While you may have never had a term for it, I guarantee you use leverage daily whether you want to buy a car and you use a loan, or you buy groceries from the store and use your credit card. Now taking on this kind of debt cannot make you money in the traditionally used way, but there are ways around borrowing money that will allow you to come up on top with the right amount of research.

2 Ways to Leverage your Primary House

I hope your not to surprised to discover that your primary house can be the easiest to leverage financially. The first way is to NOT leave your equity (the difference in amount of what you owe on the house to what it is worth) in the house. What I mean by that is if you owe 100,000 on your house but it is worth $200,000 don’t just let that money sit in your house. Take out a Home Equity Line of Credit (HELOC) for whatever your bank will give you (usually 80% of the equity in the house) so in this case $80,000 and use it to invest. A HELOC is like a credit card, you don’t start paying interest on it until you use it (usually at lower interest 5-8%). Unlike a second mortgage where if you took out the equity you would start paying on the full amount right away (not a good deal for a primary home). Better yet a HELOC is interest only and most of the time you don’t have to pay it back for 10 years.

A second way you may be able to leverage your home is to start renting out that basement, extra room or mother in law suite on Air BnB or some other rental site. Most people have extra space that they don’t use. Start using that space and make some extra money today. That is exactly how I pay my mortgage each month.

How to Leverage your Loans

This next one is case by case. I only recommend it if you have extra income every month and already have an emergency fund, are contributing to retirement accounts and have no bad debt (car, student loans etc.). One way to use leverage is by taking out low interest rate loans, most of the times these will be secured by some asset such as a car, stocks, bonds or any other tangible (hard) asset. If you are able to get a loan that is low enough interest where you know with a reasonable certainty that you can get a higher rate of return, then what you are paying in interest, then I would encourage you to explore your options in investing those funds and trying to get a higher return on your investment. If you are able to then you essentially received free money.

Another little known leverage tool are student loans. Let’s say Sam has a 100% scholarship and is in school for four years. He is a business major and decides he wants to take out some student loans to invest. Any interest that he makes on the money while he is in school is free because he doesn’t have to start paying back any interest on his loan (in most cases) until 6 months after he graduates. After that time, he could payback the loan and keep the interest or he could pay the student loans back over time and continue to let the compound interest work for him in his investments. Now the counter argument is he could lose it all, which is very true. In such a case I would tell him if that is what you he is afraid of then don’t do it. However, I don’t know any rich people that never took a chance. I do know a lot of poor people that never took a chance.

Options to Invest

No crazy revelations in this paragraph but probably some options you have been ignoring. First go out and buy a second house. Go to a bank and get a mortgage for a second house. Then when they ask for the 20-25% down you use one of the above methods to get that money. As long as you can rent the house out and pay back your loans with some extra left over you have an asset that puts some cash in your pocket each month. Also, you are paying down your mortgage that can then be used to do either a HELOC or cash out refinance and then you can go out and buy your third house and so on. This is basically how the rich get richer.

If you don’t want to do that, then go out do your research and invest in the stock market. Depending on how much interest you are paying on your loans, get something moderately safe like a mutual fund. Hire an expert and do it right don’t just treat your investments like Vegas where you are gambling your money away. If you are smart and choose to take the time to do the research then you will have the knowledge to invest your money the right way. Go out find an expert/professional to evaluate your finances and decide if there is a way that you could be better using your assets today!

Recommended Books:

1. Rich Dad Poor Dad
2. The Book on Rental Property Investing: How to Create Wealth and Passive Income Through Intelligent Buy & Hold Real Estate Investing!
3. Free Money for Student Loans: A Step-by-Step Proven Strategy to Pay off Your Debt in Four Years or Less
4. Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
5. Using Your Home To Pay Off Your Debts: The Homeowner’s Basic Guide On Home Equity Loans With Really Useful Tips On How To Get A Loan Using The House As Collateral To Pay Debts Off Right Away