Leverage
Using borrowed money to increase the potential return on investment. Leverage amplifies both gains and losses. A property bought with 25% down has 4x leverage, meaning a 10% property appreciation creates a 40% return on equity.
Key Points
- Understanding leverage is essential for evaluating real estate investments
- This concept helps investors compare opportunities objectively
- Our Free Snapshot tool automatically calculates relevant metrics for any property
Related Terms
Loan-to-Value (LTV)
The ratio of the loan amount to the appraised value of the property. LTV = Loan Amount / Property Value × 100. A 75% LTV means you're borrowing 75% of the property's value and putting 25% down.
Cash-on-Cash Return
A metric that measures the annual pre-tax cash flow relative to the total cash invested in a property. Unlike cap rate, it accounts for financing and shows your actual return on invested capital. Formula: CoC = Annual Cash Flow / Total Cash Invested × 100.
Down Payment
The initial equity payment made when purchasing a property, typically expressed as a percentage of the purchase price. Investment properties usually require 20-25% down payment, compared to 3-20% for primary residences.
Learn More
Dive deeper into real estate investing concepts with our comprehensive guides.
Browse All Guides