If you want to grow your wealth fast and better, buy residential property to rent out. Your investment will grow faster because of the leverage that a mortgage gives you, and it grows better because rental income, tax laws, and responsible mortgage decisions keep your risk extremely low for such a high return. Here’s how.

Leverage gives you high investment returns:

Owning residential rental income can give you high returns at very low risk. The high returns come from the leverage of buying your property with a mortgage. Your investment is your equity – the value of the property less the mortgage amount you owe on it.

When you buy a house, you put a fraction of its price down. The bank pays the remainder through a loan (i.e. a mortgage) you now owe. Each monthly mortgage payment you make includes a portion for interest with the balance of the payment going toward paying off the principal of the loan. The principal payment portion eventually kills off (amortizes) the loan.

Early payments in a 25-year mortgage are mostly for interest; ending payments are mostly for principal. These two components are equal at about year 18. Very little principal (loan) is repaid during the first 10 years.

Here’s how your equity grows fast:

Suppose you put 20% down for a $200,000 house – which gives you $40,000 in house equity and a $160,000 mortgage. If house prices rise just 5% over the next year, your $200,000 house will be worth $210,000. Since you still owe about $160,000 on the mortgage, your equity has grown to $50,000. That’s a 25% equity growth rate for your equity due to a 5% growth rate in for the house. » Read more: Owning Residential Rental Income Property Grows Your Wealth Faster and Better