Friday, April 17, 2015

Until recently, I had never heard about Hipster - Hipster Investments, that is - providing education, promotion, and referrals for various real estate investment opportunities.

Hipster Investments founder Ali Boone is a real estate investor and she says her hipsterinvestments.com was "born organically from her involvement in the industry."

Back in late 2012, someone asked Boone whether they should pay all cash for an investment property so they can borrow against it, or leverage it. While the Hipster Investments founder doesn't claim to be an expert, based on her calculations and experience, Boone responded saying leveraging is the way to go every time for two main reasons:

1. The potential for cash-on-cash return will be significantly higher, and;

2. Personal risk is less because you are using less of your own money and more of someone else’s.

She learned this lesson after buying her first rental property. Boone sat down and did the math, and using that property as an example, she calculated 20 percent down and a mortgage - against an all-cash buy.

That $55,000 house she bought had a cap rate of ~14 percent.

However, if she bought the property with all cash, Boone calculated her cash-on-cash return equaled the cap rate because the denominator in the equation was the same - the purchase price was what she would have paid in cash.

Then she recalculated everything assuming the financing - and the cash-on-cash return took a flying leap up to 32 percent - more than double!

With a return like that, Boone recommends using your investment to buy more investments. Say you have $100,000 cash to invest. With an all cash buy, Boone figures you can pay $100,000 for one property, then pull out financing against it and buy a second property.

She reminds potential investors that the main risk here is you may not be able to get that full $100,000 out of it to buy that second property. For Hipster Investments founder Ali Boone, the move certainly paid off well.

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