valuation
leverage
Leverage is the use of borrowed money to buy an investment, allowing a small amount of the investor's own cash to control a larger asset. When the property's return exceeds the cost of borrowing, leverage magnifies the investor's return on equity (positive leverage); when it does not, losses are magnified (negative leverage). Higher loan-to-value ratios mean greater leverage and greater risk.
- Exam tip
- More borrowed money = more leverage = higher potential return and higher risk. Exams often ask how a small down payment affects return on investment.
- Example
- An investor puts $50,000 down on a $500,000 property; a 10% rise in value adds $50,000, doubling the investor's equity.
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Last verified: 2026-10-23