Leverage Definition
Leverage is the use of debt to finance the acquisition of an asset. In real estate, leverage is the ratio of the loan amount to the value of the property. For example, if you purchase a property for $100,000 and take out a loan for $80,000, your leverage ratio is 80%.
Leverage can be a powerful tool to help you achieve your investment goals. It can allow you to purchase a property with less cash down, which can free up capital for other investments. Leverage can also help you increase your returns by allowing you to finance a larger purchase price.
However, leverage can also be a risky strategy. If the value of the property decreases, you could end up owing more than the property is worth. This could lead to foreclosure or other financial problems. Before using leverage, be sure to understand the risks involved and consult with a financial advisor.
