Hello and welcome to Moneygirls quick and dirty tips for a richer life.

Today's topic is leverage.

This is one of my favorite financial topics and here's why.

Leverage can turn an ordinary income and savings into real wealth. It's the key behind the fortunes of many

millionaires. So what is leverage and how can you use it to take control of your

financial future? Leverage means using a lever. It's the power to lift something really heavy with a small effort.

When it comes to money, it means using borrowed money and a relatively small initial investment to control a much larger asset.

So what types of investments allow you to use leverage?

Well real estate is one of them.

It's possible to invest in a home using a very high degree of

leverage or OPM other people's money. This means that over the long term you get the

benefit of appreciation on the value of the house, but most of the money used

to buy it is the lenders, not yours. This is one of the biggest benefits of investing in real

estate. For short-term investors, however, it's also one of the biggest risks.

Although home price appreciation has slowed nationally, over the long term, real estate is appreciated about 5 to 6 percent per year on average in the U.S.

Now this return may not sound like anything to write home about, but the power of leverage can really magnify it.

Let's look at a simple example.

Imagine you buy a house for $100,000 and put $20,000 down. That's 5-1 leverage. If the house appreciates 5% in the first

year, you've earned $5,000 on your $20,000 investment from the appreciation.

That's a 25% return, not accounting for closing costs.

It's an impressive return.

If you put only $10,000 down, that is if you use 10 to 1 leverage instead,

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