Leverage

Definition: Leverage is the use of borrowed money to finance an investment, changing the relationship between the property's results and the owner's equity return.

Example

An investor purchases a $400,000 property using $100,000 cash and a $300,000 loan, before costs.

Keep the distinction clear

Borrowing can magnify gains and losses and creates payment obligations. Leverage does not require appreciation to exist, and a larger loan does not guarantee a better return.

Related terms

Positive Leverage · Negative Leverage · Equity

Keep studying

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

References: FREC Course II syllabus: investment concepts

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

Pronunciation reference: Merriam-Webster