Positive Leverage

Definition: Positive leverage occurs when using debt improves the investor's equity return under the return measure and assumptions being analyzed.

Example

In a simplified interest-only example, a $100,000 property earns $8,000 before financing. Borrowing $50,000 at 6% leaves $5,000 on $50,000 equity, a 10% return instead of 8%, ignoring other costs.

Keep the distinction clear

Use comparable rates and periods. Positive cash flow alone does not prove positive leverage, and amortizing debt changes a cash-on-cash comparison.

Related terms

Leverage · Negative Leverage · Net Operating Income (NOI)

Keep studying

Income Approach: NOI, Cap Rate, Property Value, and Cash-on-Cash Return

References: FREC Course II syllabus: investment concepts

Pronunciation (US): PAH-zih-tiv LEV-er-ij (capitals show stress)

Pronunciation reference: Merriam-Webster